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!

[Bill Gulley]

Hi, title is passed upon the execution of the deed, not the filing. I would think that it is an adminstrative proceedure as there is no accounting advantage or responsibility avoided from delaying the filing of any deed, giving public notice of the transfer of title. As to any other lien holders, any lien I could file after the date of the title transfer of a foreclosed property could be lifted and would not have any effect, but since public notice was not made and I had acted in good faith, I would not be liable for filing a false lien either.
State law may not address when a deed must be filed, accept as necessary to provide good title. Most states have time limits for the filing of any release of liens after they are satisfied. With any foreclosure, it would be those liens and encumbrances made of record prior to the sale, as the sale wipes out other claims not of public record with the exception of taxes, assessments, court orders and workmens'/ materials liens, depending on state laws.

In Missouri for example, a contractor may sell a property and sign a release, but sub contractors may still file a lien for unpaid work/material and the buyer would be responsible to pay the workers, but the contractor-seller is then liable to the buyer for the financial loss. Since your seller is a bank, I would not be concerned about collecting damages arising from this aspect. Good luck....