Wiped Junior Liens and Credit Reports

[Sandy Uhlmann]

In doing due dil on a newly released tape of junior liens,  I see several properties on this  that are listed by Zillow as being already sold. I have several questions related to this circumstance.

1) Why are these tapes being released with liens that apparently are no longer valid?

2)  If property was sold either by a traditional sale or a short sale, the second lienholder would have had to be paid off to clear the title Is this correct? In this case, the credit report would reflect this account as being "closed"?

3) If it were foreclosed on and taken back by the lender, the junior liens would become unsecured debt. What would appear on the credit report in this case?  I am assuming that the property would not be listed since the lien is no longer attached to the property?

[Dion DePaoli]

Credit reports are for credit not title.  Trying to use a credit report for other reasons is going to mislead you.  Credit reporting is not conducted by all creditors.  Accounts can be sold and show as closed but still be active at the new creditor.  Reporting of accounts may not be current.  Some other issues as well.

A second lien which survives a foreclosure would typically be from lack of proper notice and identification to be foreclosed.  In other words, the lien was not given proper notice for its right to redeem.  This would mean the foreclosure would have to be vacated and redone.  That is not a title claim.  Title insurance doesn't protect for such things.  The foreclosure would have to be redone and the missing interested party must be given their right to redeem which includes the statutory time to do so.

A second lien doesn't need to be paid at all if the first forecloses.  The second lien, along with all other interested parties in the property, are noticed of the foreclosure and get their right to redeem the property from foreclosure to protect their interest.  If the junior interest holder (junior liens or borrower, etc) fails to redeem they will be foreclosed.  Foreclosure is the termination of the right of redemption.  The debts (if any) remain, where allowed by state law, liabilities of the borrower.  Those creditors have no interest in the property.  The debt is then unsecured.

Closing on a loan with a third party is not common.  It is true that FCI will act as a "clearing agent" for the trade.  Do not confuse that function with real property title companies daily business.  It is not even close.  An attorney could act as a clearing agent but often when the attorney is working with one side or the other, debates occur on the interest they protect.  

Further, typically a loan sale contract does not include provisions of escrow or bailee to allow for trades to clear in that manner.  This means that when that arrangement is desired you will need to produce a separate document which deals with all the terms of the trade clearing or modify the contract.  Not a DIY.  The defense against not having a clearing arrangement is typically the buyback period for failure to deliver the require documents within a set period of time.  

Also - Watermark is a joke.  

Closing with a title company does not grant an existing mortgage title insurance.  A lender's title policy is purchased at the time of origination.  In a secondary market transaction an endorsement can be purchased which will validate the lien and priority.  That product is not commonly purchased in residential loans away from newbies.  We have never purchased such a product nor suffered any harm for not doing so.  

Learning to do title abstracts is a good goal.  There is more to good abstracts than simply checking the subject property.  Borrowers can have blanket liens filed at the county level for judgements.  Newbies are highly prone to believe what they see or find is all there is, which can be misleading.  Best to simply have a real title report vendor do the work and create the report for you.

I don't know of any Seller, including myself, that would deliver a file without funds.  The typical settlement is payment vs delivery not delivery vs payment.