Clean title -> Countrywide corrected a mistake -> Mortgage Appeared - Need Help!

[Andrew Clark]

Bare with me...

Key facts:

Shane bought a home in 2006 with a Countrywide mortgage. Countrywide recorded their lien using the incorrect 'legal description' of the property.
Shane stopped paying his mortgage somewhere in 2008.
Shane sold his property to Daniel in 12/2009 for $25K cash. Daniel did NOT get title insurance or have a search completed (a bit fishy).
I purchased said property in 3/2010 for $60K cash after I had a title search completed (free and clear) and purchased title insurance. It came back free and clear because Countrywides incorrect legal description of the property did not link this mortgage with the property.
Countrywide decides they should pursue a foreclosure against Shane. They realized their 'legal description' issue and miraculously correct it. BAM!!! All of the sudden there is a mortgage on my once free and clear property.

I have already rehabbed this property and have a closing date set with buyers utilizing the 8k tax credit. I've been advised if I am not able to sell this property, the buyers will sue me for their 8k tax credit loss and their re agent will sue for the loss of commissions.

My question is, what right does Countrywide have to just 'update' their originally incorrect filing. Keep in mind, their update didn't happen until two deeds after their original owner. I understand when a mortgage is granted the grantee signs documents agreeing to help correct any typos and filing errors, but I didn't agree to any of that. I understand Shane was trying to pull the wool over everyones eyes (probably in cahoots with Daniel), but I want to know if this magic mortgage appearance is legit or will Countrywide have to eat this mistake once pressured?

I am meeting with my lawyer in the morning to sort through this mess.

For as much of a mess this is, I am looking forward to getting knee deep in new information. You can't learn this in a book!

Any advice will be greatly appreciated!

Thanks!

Andrew

[Jon Holdman]

WOW! This is a serious bummer! I don't see that you did anything wrong, and ended up in this bad position. That really sucks!

Your title insurance is the starting point. I assume you did get title insurance when you bought the property. They may well have enough exclusions to avoid paying, but they're the starting point.

Daniel, and probably Shane, will also need to be sued. From your description, it sounds like Shane realized the mortgage wasn't properly recorded and sold the property to Daniel specifically to further obfuscate the title. You've been defrauded by these two, and you're going to have to sue them. The title company may or may not be helpful.

Daniel may well have been defrauded by Shane. If they're buddies, I'd guess they are in cahoots. If Daniel's just a sloppy wholesaler, maybe he got defrauded, too. Doesn't really matter. He gave you a warranty deed guaranteeing clear title, so he's your first target.

Yes, almost certainly, Countrywide has the right to fix the error. You've been to enough closings to know there is a form you sign as either buyer or seller specifically stating you'll help fix any errors like this.

Glad you're getting legal help. This is going to be ugly. I expect the buyers and thier agents are going to sue you. Whether they will win or not is the question. They may think they have a good case, but I think they would have to prove intent on your part. Doesn't sound like that's the case, and your lawsuits against Daniel and Shane should help shield you. I suspect this will all pan out that the property goes back to Shane, who gets foreclosed on. You, these buyers and their agent will all end up winning judgments against Shane and maybe Daniel. Daniel could also end up with a judgment against Shane. You'll be out your rehabbing expenses, the buyers will be out their $8K tax credit, the agent's out their commission. Daniel may be out his $25K. Shane will turn out to be broke and you'll get nothing from him.

This one is definitely an interesting learning experience. Please do keep us posted on how this unfolds.