All Forum Posts by: Peter Walther

Originally posted by @Wayne Brooks:

I always recommend buying your Own title policy from Your title company....the ones offered often do incomplete searches and you get stuck with exceptions to your policy. 

Or you get a policy without an exception for a defect either because of negligence or a deliberate decision and then you either can't sell or refinance because another title company won't insure over it or worse, you find out when you're sued and wind up in litigation for several years.

Many times a buyer is dealing with the lender's agent when buying an REO, particularly when purchasing through an online auction. Generally the Seller agrees to pay for the Owner's Title policy if you close with the title company they choose. If you want to use a title company of your choice you can, but you'll have to pay for the policy.

If you check I think you might find the title company is owned by or affiliated with the Seller or the Seller's agent.  Some people might think there is an inherent conflict of interest because the title company is not supposed to have any interest in the transaction.  Having an interest in the outcome might give the title company cause to overlook something that would otherwise hold up the closing.

In general, low fee equals low quality, not that high fee necessarily means high quality.  I used to tell people, you can have it fast; you can have it cheap; you can have it right.  Pick any two, you can't have all three.

Originally posted by @Jacqueline Christina Johnson:

New to the area of RE. So please bear with me. We live in California and our family friend is an Agent selling a home in California.  The buyer is currently backing out of the deal due to the COVID019 Pandemic and their personal matters.  The Sellers have already purchased a home out of state and at this point, is willing to transfer the title to my husband and me, because they know we have been looking for a home.  Our family friend is saying that we can easily use a Quit Claim Deed to transfer the title but my husband is extremely cautioned and wants proof that we are not walking into a trap with a Quit Claim Deed, hence why I am reaching out on this platform. If we use a Quit Claim Deed and/or Warranty Deed, when can we refinance the property to place the title in our name with a potentially lower interest rate?    Back Story:  The home still has a mortgage on it and we would, of course, pay the mortgage to make sure the seller's name is intact.  We just cant qualify at this time for a 500k loan but in two years we will be able to, so we figured by doing this, this could not only help the sellers and us.

If your family friend is truly a friend (s)he should be recommending that you purchase the home in a traditional manner.  That is, sign a contract, have a closing and get a title policy insuring your interest.  The form of deed really doesn't matter, what you get is the title the Grantor either way, though it might not be the title you expect.

You know about the mortgage (in CA I believe it's a Deed of Trust which amounts to the same thing) but do you know if there's any other liens on the property?  While the Preliminary report you'll get from the title company does not inform you as to the status of the title it does tell you about any liens the title company found that won't be covered by your policy.  That would let you know some of what the title company found.  While you probably won't be personally liable for the debt, the lien holder may be able to bring a foreclosure or Sheriff's sale and wipe out your interest in the property, including any investment you made into improving it.  I've also seen lender's try to force any rents that were collected be turned over to them in accordance with the loan docs particularly if the the loan was for investment property.

In addition, in some states, if the property is subject to a home owner's association and there are outstanding assessments owed you as the purchaser may become personally liable for the debt.

All in all it might be wise to talk to a good real estate attorney to make sure you understand what you're getting into.  It will cost some money, but a good education always does.  Good luck.

Three things I suggest you keep in mind:

First, just because you bring the foreclosure doesn't mean you'll wind up with title to the property.  The property is sold at a foreclosure sale with bidding open to all comers.  As the party foreclosing you'll be able to bid your judgment amount (principal, interest, costs and attorney's fees) without any additional financial outlay but if a third party bids a dollar more you'll have to decide if you want to top the bid or get back what you're owed and move on.  If nobody bids more I think its an indication local investors believe the property isn't worth more than what you're owed.

Second, junior lien holders may have the right to payoff your lien to protect their interest in the property.  You'll again receive what you're owed but no more.

Third, some states give the borrower a period of time to redeem the property after the foreclosure by paying off what you're owed.  Here's a link that gives some additional information.  https://www.nolo.com/legal-enc...  Good luck.

You should probably sit down with a good Alabama real estate attorney, preferably who practices in the county where the property is, and get a thorough explanation of how the tax sale procedure works in that county and where you stand with your current purchase.  Consider the cost tuition for part of your real estate education.

Originally posted by @Tom Gimer:

@Peter Walther Had this exact scenario occur within the past 2 months and the underwriter gave the answer I provided above. Buyer failed to close in a time of the essence situation but kept working on getting funds, making promises, even stating multiple times that they had initiated the wire. Nothing arrived of course.

I always prefer to see a mutual release but with a buyer clearly in breach the title insurer (a top 3 national underwriter) said "no release required". Of course it could be a totally different business decision to make for the title company and parties if the breach was not so clear or the contract terms were ambiguous.

Underwriting the issuance of a title policy is always a judgment call.  I tend to be more conservative than some others but I guess its based on my experiences.  I've found that no matter how clear the facts appear to be to me, someone can disagree.  However, Moni has posted that the matter is in Small Claims Court.  If I had a chance to read the filings I very well might change my mind.

Are you saying in your post the escrow agent will not release the earnest money deposit to you or to the buyer? If not to you is the buyer making demand on it and you won't agree to its release? Was the buyer getting financing and now can't get a loan because of a job loss? I'd be surprised if an escrow agent and/or title agent would be willing to close and issue title insurance on a second contract with knowledge of an unreleased prior contract. The possibility of a lawsuit involving the property is way too high unless the first buyer releases the contract even with a provision you two will fight of the EMD.

The above is just my opinion, I'm am not an attorney and it is not intended to be a legal opinion or advice.

In my experience what can happen is a property owner gives a conventional first mtg, then gives a HELOC as a second. The owner/borrower then does a refi of the first with everyone expecting the HELOC to be paid off or the HELOC lender to agree to subordinate to the new mtg. Unfortunately someone forgets to obtain the sat or subordination agreement or record it.

The new mtg then goes into default and the lender seeks to foreclosure it. I can't recall working a title claim in Missouri but but some quick research found foreclosures are usually non judicial but can be judicial. In either case, since the HELOC lender is recorded prior to the mtg being foreclosed the lender is neither a necessary nor proper party to the foreclosure since it has priority of record.

In this kind of situation, where the third lender's money went to pay off the first lender's money I frequently used a theory called equitable subrogation to defeat the priority of the second lender.  Unfortunately my research also found Missouri courts frown on its application.  The Missouri Supreme Court in Ethridge apparently stated that for equitable subrogation to apply, the party against whom the doctrine would be applied (USAA in this case) must have "engaged in fraudulent conduct or committed acts bordering on fraud that created the condition that caused the lender a loss." 226 S.W.3d at 134.  I doubt that happened here.

I'm surprised a new title insurer without existing liability is willing to accept a letter of indemnification from the old title insurer because as Tom wrote, a simple paydown of a HELOC doesn't mean it was satisfied, particularly since you advised USAA isn't willing to give a satisfaction . I'd be interested to know if the commitment and policy for the new purchaser will have an exception and affirmative coverage for the USAA mtg so the proposed insured will at least be aware and hopefully understand the very real possibility of a foreclosure action being brought by USAA. If the buyer is getting a new mtg I can almost guarantee the commitment and policy don't mention the prior mtg because most lenders sell the mtgs they originate and most can't be sold if the Mortgagee's Title policy has an exception for prior liens, even if there is affirmative coverage over the defect.

Title insurance companies can be all to willing to issue a policy without exception for a defect assuming the prior title company will take care of the situation if it ripens into a claim.  Unfortunately if USAA files foreclosure it may be sometime before the issue is resolved during which the insured will probably not be able to sell or refinance and will have to worry about possibly losing the property.

I believe you wrote the HELOC was for about $60k. Lets say you're selling the property for $150k and your buyer gets an owner's title policy for that amount and to make things more interesting let's say the buyer gets a $150k VA mtg. USAA files foreclosure and can prove it's owed $160k with accrued interest and attorney's fees. The title insurer might decided its cheaper to pay the loss to the insureds rather than fight USAA and incur say $20k in attorney's fees and then lose and have to pay the policy amount anyway. In that case the VA lender would get paid the amount its owed on its mtg, probably $150k and the buy/borrower would get whatever is left under the policy, probably zero.

In addition, you might want to talk to your attorney, one who represents you about your obligations to disclose the mtg, particularly if you're giving a Warranty Deed.

I'm not in a position to opine on the plats legality since I'm not an attorney.  I can say, based on the information you've provided, it appears the plat was not submitted and accepted by the county so the lot designations on it may not be relied on by a title underwriter that does not already have liability.