OMG! Closed, but NOT!? Will Title Insurance Cover Holding Costs?

[Steven Silva]

Have you heard of this? and what can I do? I closed on a house last week, but didn't really close.

I closed on a fix-n-flip in Denver, Colorado (Commerce City to be exact) on Wednesday last week, but title called me the following morning 4/21 telling me I cannot do any work on the property! What should I do? Nothing has changed since then except I have been filled in on a few details which I included below:

Title said: 

"The seller wasn’t aware that his parents held title as tenants in common so when his father passed the property went to his father’s estate 50% and Lydia 50%. The lawyer called today and asked a couple of questions. She said that the seller was meeting with her on Monday to get everything started for the estate. Then it needs to be filed with the court. At that point we are just waiting for the court to issue the letters of appointment. Once we have those, the lawyer will prepare the personal representative’s deed and then we can get this finished up. We are just at the mercy of the court."

Here are my questions that I hope the community can help me with:

• What are the potential outcomes of this? 
• Is this just another risk of being on investor or did title/seller drop the ball?
• Is this something where the closing could be reversed? 
  
  • If so who is responsible for all my costs/opportunity cost?
• Should I begin demo anyways to stay on schedule?
  • If any, what are the repercussions of starting work?
• Should I contact my lawyer?

My holding costs are roughly $57/day. 

[Chris Martin]

You say "I closed on a house last week..." Closing means a deed was recorded, funds disbursed, etc. Is that the case?

It doesn't sound like you have a deed to the property. Until you do, you can't (without permission, etc.) work on someone else's property. If you did get a deed (and I'm assuming it's recorded last Wednesday), hopefully you also bought a decent owner's title insurance policy. This sounds like an issue that might lead to a title insurance claim. My logic is that if you have the deed, an attorney probably wouldn't be telling you that you can't work on the property... only that there are title issues that need to be resolved.

[Steven Silva]

Ok thanks for the clarification. You are probably right. I may not have enough knowledge on closings and be confused. 

That being said, I still have holding costs until this is resolved. So, in the meantime, who pays those costs? title insurance? hazard insurance? 

Title said seller is sending a signed letter saying he will still close on the property, is that enough for me to begin work? 

[Michael Olesky]

Hey @Steven Silva Doesn't sound like you have closed yet!  I feel like we are missing some info here, but the lawyer is basically saying the court hasn't approved the sale of the property yet.  If you haven't closed yet I'd say you don't have expenses yet.

[Luka Milicevic]

I doubt that's enough to begin work. Wait until everything is resolved would be my advice.

What are your holding costs at the moment?

If you truly did close on the property. It sounds to me like the title company might have dropped the ball with their title search. 

[Julie Macd]

@Steven Silva If you do not have a registered deed than you do not own the property. Do not start any work until you know the property is registered in your name. While the lawyers will always make it sound easy you never know until the ink dries. What if the other party does not want to sell or has other ideas?

 Yes call your lawyer. A few hundred dollars is lawyer fees could save you much more in the long run, and as you are inexperienced, the lawyer will be more likely to be able to tell you how serious the situation is and what your rights are as far as the seller and or the title company.

What are your carry costs? Insurance policy should be adjusted to closing date.

Has the lender already transferred the fund to escrow? or are you paying cash? 

[Wes Brand]

If you don't own the deed and funds haven't been disbursed, where are your carrying costs of 57/day coming from? If you do, then yes, your title insurance should cover it, presumably under the undiscovered encumbrances clause. You'll have to check your policy for the details.

[Steven Silva]

Title said: "Yes, I have the lenders funds and they are in escrow until we close the other file. I was unaware that one of the seller’s was deceased and that XXX was signing as power of attorney for the other seller. So we are at the mercy of the court. We have closed, but in escrow pending the completion of the closing of the other file."

[Steven Silva]

Thanks guys. I have been clarifying holding costs with title and lender today. I may have jumped the gun. 

So, my original concern was utilities, interest fees $48/mo, taxes, & insurance. Someone else said I can adjust insurance back to the right closing date, I am working on that now. I also reached out to title to see if they are adjusting the prorated taxes for whenever escrow closes since I signed paperwork it mentioned prorated tax amounts. 

[Rick H.]

Aclosing that did not happen is called a pending escrow. It may or may not ultimately close with you as buyer.

It's not the title company's jib to solve a problem between you and your seller, although they typically do offer assistance where and when possible. 

Escrow department will advise you of any curative aspects required that they cannot resolve. 

I ALWAYS make it my business to review title before den making an offer. Also, there may be an existing problem or a future problem that I see developing and I will negotiate my deal, transferring the risk to others, as appropriate.

[Matt M.]

Um...stop posting on this site and speak with an attorney NOW. You cannot believe everything a title company says as they also have interests to protect. Where is your agent on this deal? He or she may have one on retainer.  

[Steven Silva]

Thanks @Matt M. Will do.