Wrong end of the foreclosure process! Looking for advice.

[Blair Nye]

I'm an out of state investor living in Tacoma, WA. I own a property in Fayetteville, NC that I bought in January of 2021 and have never missed a payment on. When my PM visited the property this morning they found foreclosure documents there, with a scheduled court hearing date of December 5th, 2022. Apparently three owners back the owner did a quit claim deed to an LLC. This was in 2013. That owner is now being pursued by Rocket Mortgage for $58,000. And since Rocket Mortgage doesn't appear to have gotten ahold of him, they are now coming after the property.

When I bought this property, we went through all the standard paperwork, including title insurance and a title search. No red flags came up and we had a smooth closing. I had a local agent representing me and we closed through a local law firm that handles a high volume of real estate transactions. 

The same law firm that handled the closing AND the title search is now looking into this issue for me. I have a lot of questions, but these are my top 3. Any insight is appreciated!

1) Should I speak to another attorney about this?

2) Has anyone ever been on the wrong end of a foreclosure and successfully fought it? If so, what did you ?

3) What would you do if you were in my shoes? 

[Todd Rasmussen]

@Blair Nye

Call title insurance and file a claim, hire a different lawyer to appear in court for you on Dec 5th (may or may not be provided through title insurance), call rocket mortgage and tell them you purchased the property with a warranty deed and title insurance in January of 21 and give them the contact information for the title insurance company. I'd fly to the Dec 5th hearing to be present as well. The lawyer that handled the closing for you is not your friend and should not represent you in court. In this situation their and your own interest might conflict. Also, give rocket mortgage your mailing address for any correspondence they have moving forward. I would also set up mail forwarding at the property so if they mail notices to the property, they get forwarded to you as well.

[Blair Nye]

Thank you @Todd Rasmussen! This is a clear and concise action plan. I'm working it this morning. I appreciate your help!

[Matt Devincenzo]

Todd gave you the steps. Just because you're receiving notices doesn't mean that they are correct. I had a refi that the lien release on the original loan never got recorded and when I went to sell it caused some issues. We were able to get it sorted out and sold, but had the lender mistakenly believed they were still owed money it could have been more difficult. 

Definitely come back and update on what happened...it's interesting how things end up missed for a decade and then come up...we like to think in a tech world things always go perfectly, and the reality is the human factor always injects some uncertainty. 

[Peter Walther]

I suggest you immediately submit a claim to the title insurer whose policy was issued to you, not to the attorney who handled the closing.  The contact info is in the policy jacket or look it up online.  If it were me, I'd also contact the attorney who is handling the foreclosure and let him/her know that you have done so.  I doubt the costs you incur in retaining an attorney w/o obtaining the prior written approval of the insurer are covered under your title policy so don't expect to be reimbursed.

[Russell Brazil]

File a title insurance claim. If you bought a policy, shouldnt be too big of a deal, especially considering the small amount of the claim. 

[Jeff Copeland]

This is exactly why you purchased title insurance. Your title insurance carrier should step in to defend against this claim and clear the cloud on title.

Before you go hiring an attorney in North Carolina, flying out there yourself, or calling the plaintiff and muddying the water or disclosing something you shouldn't, I suggest discussing more details with the attorney who handled the closing. 

There's actually no particular reason they wouldn't be "on your side" in this situation. This is simply a cloud on title that they need to correct. And they were most likely the agent who sold you your title insurance policy, so they would be the ones you work with to submit your claim.

You've obviously already been in touch with them, I would suggest following up to confirm the following:

-Are you in fact the agent for my title insurance policy? (If not, clarify who was, and ask them the following)

-Who is my title insurance carrier and what is my policy number? (You should have this with your closing docs, or you may have received it in the mail a few weeks after closing, but still worth confirming.)

-Will you be opening a claim with my title insurance (or have you already?) - If not, why not? If so, when, and can I get my claim number?

-Who, how, and when are we going to respond to the hearing in December? (Note: Your title insurance carrier may assign counsel for this, or may work to get it postponed. Attending the hearing, or getting involved at all, may be the last thing they want you to do at this point. If they want/need you to attend or respond, they will let you know - But clarify with them either way.)

-What is the process to rectify this beyond the hearing? How do we clear the cloud on my title?

This probably goes without saying and may not be an issue, but it's worth noting you probably don't want to sell the property until this is resolved. Adding another contract to the mix would only further complicate things. 

[Shannon Allen]

First step call your title company. Then I would talk with the Realtor that represented you.  There is a lot of terrific advice in these threads but I recommend talking to the parties that were involved in the transaction and let them give you guidance, I'm sure its the title companies first time dealing with this!

[Don Konipol]

Quote from @Blair Nye:

I'm an out of state investor living in Tacoma, WA. I own a property in Fayetteville, NC that I bought in January of 2021 and have never missed a payment on. When my PM visited the property this morning they found foreclosure documents there, with a scheduled court hearing date of December 5th, 2022. Apparently three owners back the owner did a quit claim deed to an LLC. This was in 2013. That owner is now being pursued by Rocket Mortgage for $58,000. And since Rocket Mortgage doesn't appear to have gotten ahold of him, they are now coming after the property.

When I bought this property, we went through all the standard paperwork, including title insurance and a title search. No red flags came up and we had a smooth closing. I had a local agent representing me and we closed through a local law firm that handles a high volume of real estate transactions. 

The same law firm that handled the closing AND the title search is now looking into this issue for me. I have a lot of questions, but these are my top 3. Any insight is appreciated!

1) Should I speak to another attorney about this?

2) Has anyone ever been on the wrong end of a foreclosure and successfully fought it? If so, what did you ?

3) What would you do if you were in my shoes? 

There are basically three possibilities
1. You have a title with no defects, and the foreclosure is either a mistake in title chain analysis, or an error in legal interpretation by the plaintiff.  Sending the foreclosure docs to your title insurer should get them moving to gather enough information to decide on a position

2. There was a legitimate claim preceding your purchase that was somehow “missed” by the title underwriter/researcher.  If so, the title insurer is legally responsible for making you whole up to the amount of the title policy.  Which means if the property has appreciated since purchase that increase may be “at risk”.

3. The plaintiff initiating foreclosure has a valid legal theory; your title insurer has a valid legal theory.  This would normally play out in court or with a settlement a couple of years down the road.

so what to do now.  Well, here’s the hard truth; for CONSUMER insurance, such as retail auto policies, homeowner policies, etc.  the insurer will USUALLY accept responsibility without the insured jumping thru hoops.  Why?  Because the insurers don’t want government regulators, or worse, politicians, sniffing around their business, rates, internal records, etc.  BUT this is investment property, so you fall under business, not consumer.  MOST insurers automatically deny claims if the insurance is commercial, because a certain percentage of the claims will then go away, even if they’re legitimate claims, even if there’s no question that the insurance company is liable.  Here’s the tough part; to protect your interest it is best to hire an attorney to represent you and for him to contact the title insurer.  I have contacted title companies with claims myself and a letter came back denying the claim.  Went to my attorney, when he saw the letter he said not to worry; it was a form letter sent to EVERY CLAIMANT not represented by an attorney.  He then sent a letter to the title insurer, received a phone call from them within three days, and 5 days later we received a letter stating that they had accepted the claim!  The downside; you will not get reimbursed for your attorney fees.  

[Peter Walther]

Quote from @Don Konipol:

Quote from @Blair Nye:

I'm an out of state investor living in Tacoma, WA. I own a property in Fayetteville, NC that I bought in January of 2021 and have never missed a payment on. When my PM visited the property this morning they found foreclosure documents there, with a scheduled court hearing date of December 5th, 2022. Apparently three owners back the owner did a quit claim deed to an LLC. This was in 2013. That owner is now being pursued by Rocket Mortgage for $58,000. And since Rocket Mortgage doesn't appear to have gotten ahold of him, they are now coming after the property.

When I bought this property, we went through all the standard paperwork, including title insurance and a title search. No red flags came up and we had a smooth closing. I had a local agent representing me and we closed through a local law firm that handles a high volume of real estate transactions. 

The same law firm that handled the closing AND the title search is now looking into this issue for me. I have a lot of questions, but these are my top 3. Any insight is appreciated!

1) Should I speak to another attorney about this?

2) Has anyone ever been on the wrong end of a foreclosure and successfully fought it? If so, what did you ?

3) What would you do if you were in my shoes? 

There are basically three possibilities
1. You have a title with no defects, and the foreclosure is either a mistake in title chain analysis, or an error in legal interpretation by the plaintiff.  Sending the foreclosure docs to your title insurer should get them moving to gather enough information to decide on a position

2. There was a legitimate claim preceding your purchase that was somehow “missed” by the title underwriter/researcher.  If so, the title insurer is legally responsible for making you whole up to the amount of the title policy.  Which means if the property has appreciated since purchase that increase may be “at risk”.

3. The plaintiff initiating foreclosure has a valid legal theory; your title insurer has a valid legal theory.  This would normally play out in court or with a settlement a couple of years down the road.

so what to do now.  Well, here’s the hard truth; for CONSUMER insurance, such as retail auto policies, homeowner policies, etc.  the insurer will USUALLY accept responsibility without the insured jumping thru hoops.  Why?  Because the insurers don’t want government regulators, or worse, politicians, sniffing around their business, rates, internal records, etc.  BUT this is investment property, so you fall under business, not consumer.   insurers automatically deny claims if the insurance is commercial, because a certain percentage of the claims will then go away, even if they’re legitimate claims, even if there’s no question that the insurance company is MOSTliable.  Here’s the tough part; to protect your interest it is best to hire an attorney to represent you and for him to contact the title insurer.  I have contacted title companies with claims myself and a letter came back denying the claim.  Went to my attorney, when he saw the letter he said not to worry; it was a form letter sent to EVERY CLAIMANT not represented by an attorney.  He then sent a letter to the title insurer, received a phone call from them within three days, and 5 days later we received a letter stating that they had accepted the claim!  The downside; you will not get reimbursed for your attorney fees.  

You had me right up to when you wrote:

BUT this is investment property, so you fall under business, not consumer. insurers automatically deny claims if the insurance is commercial, because a certain percentage of the claims will then go away, even if they’re legitimate claims, even if there’s no question that the insurance company is MOSTliable.

and 

Went to my attorney, when he saw the letter he said not to worry; it was a form letter sent to EVERY CLAIMANT not represented by an attorney.

Title insurance is a heavily regulated industry and in my experience the state Departments of Insurance regulators take their jobs seriously. In addition, there is no difference in the way a claim is handled for investment property vs. personal use. An insurer frequently doesn't even know the use of the property being insured particularly when it a SFR.

I have personally had to provide a state investigator an explanation not only of how I reached a coverage decision but document the timeline during which those actions were taken when an insured had submitted a complaint.  If explanation didn't pass muster or the timeline did not meet statutory requirements, the company faced possible penalties up to and including withdrawal of its Certificate of Approval to do business in that state and I'd be having a conversation with the powers that be about my actions.  In addition, many states perform bi-annual or tri-annual audits where they would review randomly selected claim files and woe betide the claims handler whose file was found deficient.

If your attorney really told you "it was a form letter sent to EVERY CLAIMANT not represented by an attorney" it must have been right after watching The Rainmaker.

Companies I've worked for have been sued by insureds not happy their claim was denied by me, not one decision ever went against the company.  The fact an insured and or his/her attorney thinks a matter should be covered doesn't make it so.

I once had an insured who submitted a title claim that was covered under the policy.  A party in possession refused to leave the property so I retained counsel to bring an action on the insured's behalf to eject the PIP.  After several months of litigation, the PIP offered to accept the cash for keys I had offered before I had even retained the attorney.  With the Insured now in possession he demanded reimbursement for his lost profits from not able to rent the place for those months and the taxes, insurance and mtg payments he had to pay.  I explained in great detail why those claims weren't covered and cited the policy provisions that formed the basis of my decision.  After a bit of back and forth I offered the insured $5k just to go away.  He wanted something like $45k, refused the offer and hired an attorney.  I went through the same coverage explanation with the attorney who refused to accept my reasoning and kept citing inapplicable cases which I distinguished from this situation.  Eventually, after a month or so of back and forth he told me his client decided to accept the $5k.  I advised him too much time and effort had passed and been expended, and the offer was off the table.  I don't know but maybe his client sued him for malpractice.

[Jay Hinrichs]

Quote from @Jeff Copeland:

This is exactly why you purchased title insurance. Your title insurance carrier should step in to defend against this claim and clear the cloud on title.

Before you go hiring an attorney in North Carolina, flying out there yourself, or calling the plaintiff and muddying the water or disclosing something you shouldn't, I suggest discussing more details with the attorney who handled the closing. 

There's actually no particular reason they wouldn't be "on your side" in this situation. This is simply a cloud on title that they need to correct. And they were most likely the agent who sold you your title insurance policy, so they would be the ones you work with to submit your claim.

You've obviously already been in touch with them, I would suggest following up to confirm the following:

-Are you in fact the agent for my title insurance policy? (If not, clarify who was, and ask them the following)

-Who is my title insurance carrier and what is my policy number? (You should have this with your closing docs, or you may have received it in the mail a few weeks after closing, but still worth confirming.)

-Will you be opening a claim with my title insurance (or have you already?) - If not, why not? If so, when, and can I get my claim number?

-Who, how, and when are we going to respond to the hearing in December? (Note: Your title insurance carrier may assign counsel for this, or may work to get it postponed. Attending the hearing, or getting involved at all, may be the last thing they want you to do at this point. If they want/need you to attend or respond, they will let you know - But clarify with them either way.)

-What is the process to rectify this beyond the hearing? How do we clear the cloud on my title?

This probably goes without saying and may not be an issue, but it's worth noting you probably don't want to sell the property until this is resolved. Adding another contract to the mix would only further complicate things. 

 Whoever closed the transaction is simply going to tell you to file a title claim and that would be it.. they are not going to do any deep dive into as they are out of the transaction now its up to the title insurer to step in the best the closing company or attorney will do is tell you where to find the section in your title policy that describes how to make a claim .  The only reason you would talk to a lawyer is if the title insurer says your not covered which would only happen if you actually did not purchase title insurance.  its a very simple process for you.. so dont sweat it and dont spend any money fly anywhere until you hear back from the insurer they deal with these things every day. 

[Jay Hinrichs]

Quote from @Peter Walther:

Quote from @Don Konipol:

Quote from @Blair Nye:

I'm an out of state investor living in Tacoma, WA. I own a property in Fayetteville, NC that I bought in January of 2021 and have never missed a payment on. When my PM visited the property this morning they found foreclosure documents there, with a scheduled court hearing date of December 5th, 2022. Apparently three owners back the owner did a quit claim deed to an LLC. This was in 2013. That owner is now being pursued by Rocket Mortgage for $58,000. And since Rocket Mortgage doesn't appear to have gotten ahold of him, they are now coming after the property.

When I bought this property, we went through all the standard paperwork, including title insurance and a title search. No red flags came up and we had a smooth closing. I had a local agent representing me and we closed through a local law firm that handles a high volume of real estate transactions. 

The same law firm that handled the closing AND the title search is now looking into this issue for me. I have a lot of questions, but these are my top 3. Any insight is appreciated!

1) Should I speak to another attorney about this?

2) Has anyone ever been on the wrong end of a foreclosure and successfully fought it? If so, what did you ?

3) What would you do if you were in my shoes? 

There are basically three possibilities
1. You have a title with no defects, and the foreclosure is either a mistake in title chain analysis, or an error in legal interpretation by the plaintiff.  Sending the foreclosure docs to your title insurer should get them moving to gather enough information to decide on a position

2. There was a legitimate claim preceding your purchase that was somehow “missed” by the title underwriter/researcher.  If so, the title insurer is legally responsible for making you whole up to the amount of the title policy.  Which means if the property has appreciated since purchase that increase may be “at risk”.

3. The plaintiff initiating foreclosure has a valid legal theory; your title insurer has a valid legal theory.  This would normally play out in court or with a settlement a couple of years down the road.

so what to do now.  Well, here’s the hard truth; for CONSUMER insurance, such as retail auto policies, homeowner policies, etc.  the insurer will USUALLY accept responsibility without the insured jumping thru hoops.  Why?  Because the insurers don’t want government regulators, or worse, politicians, sniffing around their business, rates, internal records, etc.  BUT this is investment property, so you fall under business, not consumer.   insurers automatically deny claims if the insurance is commercial, because a certain percentage of the claims will then go away, even if they’re legitimate claims, even if there’s no question that the insurance company is MOSTliable.  Here’s the tough part; to protect your interest it is best to hire an attorney to represent you and for him to contact the title insurer.  I have contacted title companies with claims myself and a letter came back denying the claim.  Went to my attorney, when he saw the letter he said not to worry; it was a form letter sent to EVERY CLAIMANT not represented by an attorney.  He then sent a letter to the title insurer, received a phone call from them within three days, and 5 days later we received a letter stating that they had accepted the claim!  The downside; you will not get reimbursed for your attorney fees.  

You had me right up to when you wrote:

BUT this is investment property, so you fall under business, not consumer. insurers automatically deny claims if the insurance is commercial, because a certain percentage of the claims will then go away, even if they’re legitimate claims, even if there’s no question that the insurance company is MOSTliable.

and 

Went to my attorney, when he saw the letter he said not to worry; it was a form letter sent to EVERY CLAIMANT not represented by an attorney.

Title insurance is a heavily regulated industry and in my experience the state Departments of Insurance regulators take their jobs seriously. In addition, there is no difference in the way a claim is handled for investment property vs. personal use. An insurer frequently doesn't even know the use of the property being insured particularly when it a SFR.

I have personally had to provide a state investigator an explanation not only of how I reached a coverage decision but document the timeline during which those actions were taken when an insured had submitted a complaint.  If explanation didn't pass muster or the timeline did not meet statutory requirements, the company faced possible penalties up to and including withdrawal of its Certificate of Approval to do business in that state and I'd be having a conversation with the powers that be about my actions.  In addition, many states perform bi-annual or tri-annual audits where they would review randomly selected claim files and woe betide the claims handler whose file was found deficient.

If your attorney really told you "it was a form letter sent to EVERY CLAIMANT not represented by an attorney" it must have been right after watching The Rainmaker.

Companies I've worked for have been sued by insureds not happy their claim was denied by me, not one decision ever went against the company.  The fact an insured and or his/her attorney thinks a matter should be covered doesn't make it so.

I once had an insured who submitted a title claim that was covered under the policy.  A party in possession refused to leave the property so I retained counsel to bring an action on the insured's behalf to eject the PIP.  After several months of litigation, the PIP offered to accept the cash for keys I had offered before I had even retained the attorney.  With the Insured now in possession he demanded reimbursement for his lost profits from not able to rent the place for those months and the taxes, insurance and mtg payments he had to pay.  I explained in great detail why those claims weren't covered and cited the policy provisions that formed the basis of my decision.  After a bit of back and forth I offered the insured $5k just to go away.  He wanted something like $45k, refused the offer and hired an attorney.  I went through the same coverage explanation with the attorney who refused to accept my reasoning and kept citing inapplicable cases which I distinguished from this situation.  Eventually, after a month or so of back and forth he told me his client decided to accept the $5k.  I advised him too much time and effort had passed and been expended, and the offer was off the table.  I don't know but maybe his client sued him for malpractice.

BUT this is investment property, so you fall under business, not consumer. insurers automatically deny claims if the insurance is commercial, because a certain percentage of the claims will then go away, even if they’re legitimate claims, even if there’s no question that the insurance company is MOSTliable

yes agreed all the claims I have ever made have been for investment and I have never had one denied EVER.. so I also don't believe this statement is true or factual.. Insurers when get their butt kicked if they did this routinely..  maybe in some other type of insurance this happens but NOT in title insurance as long as what has happened is one of the covered items. ANd missing a mortgage or mortgage release is one that is covered.  Unless your policy says your new mortgage is a second position mortgage I have had that happen to me were someone fraudulently recorded a mortgage ahead of mine about 30 minutes before my mortgage was recorded.  But since my escrow instructions said they could record and disperse my loan in first position title insurance had to deal with this senior loan.. but most likely i bet this loan paid off the servicer simply did not record a satisfaction etc.. OR if your closing attorney missed it that is one HUGE miss and they will have to pay a portion of the loss no doubt and have egg on their face for sure.

[Blair Nye]

Quote from @Jeff Copeland:

This is exactly why you purchased title insurance. Your title insurance carrier should step in to defend against this claim and clear the cloud on title.

Before you go hiring an attorney in North Carolina, flying out there yourself, or calling the plaintiff and muddying the water or disclosing something you shouldn't, I suggest discussing more details with the attorney who handled the closing. 

There's actually no particular reason they wouldn't be "on your side" in this situation. This is simply a cloud on title that they need to correct. And they were most likely the agent who sold you your title insurance policy, so they would be the ones you work with to submit your claim.

You've obviously already been in touch with them, I would suggest following up to confirm the following:

-Are you in fact the agent for my title insurance policy? (If not, clarify who was, and ask them the following)

-Who is my title insurance carrier and what is my policy number? (You should have this with your closing docs, or you may have received it in the mail a few weeks after closing, but still worth confirming.)

-Will you be opening a claim with my title insurance (or have you already?) - If not, why not? If so, when, and can I get my claim number?

-Who, how, and when are we going to respond to the hearing in December? (Note: Your title insurance carrier may assign counsel for this, or may work to get it postponed. Attending the hearing, or getting involved at all, may be the last thing they want you to do at this point. If they want/need you to attend or respond, they will let you know - But clarify with them either way.)

-What is the process to rectify this beyond the hearing? How do we clear the cloud on my title?

This probably goes without saying and may not be an issue, but it's worth noting you probably don't want to sell the property until this is resolved. Adding another contract to the mix would only further complicate things. 

Thanks for the thoughtful response. This is a huge help. I just emailed my attorney asking about everything you mentioned. I'll update the thread with how things are going once I know more.  

[Blair Nye]

UPDATE: 

I've filed a claim with title insurance and have been assigned an attorney. All attorney fees are to be covered by my insurance. 

My closing attorney has something to lose since she's the one that reviewed the title and called it good, so I'm no longer directly working with her. 

Rocket Mortgage is still pursuing the foreclosure. 

Title Insurance has admitted to me that they may have to eat this one and pay the balance of the mortgage owed to Rocket Mortgage if fault is not found to lie with my closing attorney who reviewed the title. 

Apparently the closing attorney had reason to believe the old debt had been settled, so she sent out a "letter of satisfaction", stating that the debt had been satisfied. Rocket Mortgage then had 30 days to respond. After 30 days with no response, she proceeded to close the transaction. Nearly two years later (now), Rocket Mortgage is filing for foreclosure. 

At this point I'm 99.99% sure that life will generally continue as usual for us and our rental property, but I'm not relaxing until the ink is dry and the debt has been settled. 

I'm scheduled to speak with my appointed attorney this coming Monday. I'll update the post upon any major developments.

Thanks to everyone for your insightful and actionable responses. 

[Peter Walther]

There you go, another satisfied insured who received the policy benefits he paid for.