Why a bank doesn't record a deed until closing?

[Billy Ross]

We purchase 5-7 REO's each month, and I have always had this question...

On at least 80% of the deals we do, the bank has not recorded the deed or CT, and they do not until right before closing. While it does not affect me, just always wondered why they did this. As an example, we are under contract on a deal where the original seller did a deed in lieu. The bank has not recorded the deed. Now, many sellers in financial trouble have other issues or pending judgments. If the bank does not record the deed and get themselves on title, there is the possibility that a judgment from the previous owners could potentially attach to the property. Now the lender has agreed to NOT foreclose on the property, but there is another lien attached, forcing the lender to move forward with a foreclosure action or negotiate the judgment/lien.

If I had to guess, I would say the lender does not want to be on title due to them doing something odd with their books and not actually taking ownership of the property, but that is just a guess.

Would welcome anyone with true insight on this.

Thanks!