Title insurance/warrenty deed still issue with tile on refi

[Chris Fayling]

Hey bp!

I’m having an issue and I was hoping someone has experienced something like this and could get me some advice.

Long winded backstory...

I had a property brought to me by wholesalers, I signed a purchase agreement with them. My private money guy looked at it, and didn’t like it. He had his legal team look at it and they said it was a worthless contact and there was more holes in it that Swiss cheese. I later found out their practices were illegal, and just trying to make money a sleazy way.

So I did the real estate investor thing and I hustled! I tracked down the owner and worked out a deal with her and we closed.

The weeks leading up to closing I kept these so called wholesalers on the hook, keeping the deal “alive” at least in their eyes. Just to keep them busy, you know slide of the hand.

The owner and I closed the deal back in April of 2019. I paid for title insurance and received a warranty deed. I renovated it got it rented, seasoned it, and then did the BRRRR thing and started the refi process. Jumped through all the hoops and finally got the clear to close, and then 3 days before closing the title work came back with those "wholesalers" showing interest on the title dated a month before I originally closed.

My questions are; first off how was I able to close the first time? And second title insurance and warranty deed should cover me so I shouldn’t be dealing with this issue. And third how do I resolve this? I highly doubt I could ever get into contact with the wholesalers again, and if I could I’m sure they wouldn’t be to willing to help me out after I kept them from gettin an illegal pay day.

I thank you for any advice in advance!

-Chris

[Tom Gimer]

Thanks for the tag, @Russell Brazil ... 

Here are two exclusions you are referring to which arguably may apply here: 

... 3. Defects, liens, encumbrances, adverse claims, or other matters

(a) created, suffered, assumed, or agreed to by the Insured Claimant;

(b) not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy;

Regarding OP's question about HOW this could have closed in April 2019... it's likely the good-through date of the title search was prior to the date of the recording of the equitable interest. In other words, the item may have fallen in the "gap" between the effective date of the search and the closing. 

If the recorded contract / statement of equitable interest was discovered by the title company before the April settlement, they would NEVER have closed the transaction without first obtaining a release.