Can you solve this title problem?
Sam, from the perspective of his full time job, saw real estate prices plummeting. “I should jump in the market and invest in residential rental property as a supplement for my portfolio.”
Fred, Sam's wife's cousin's son, just got his real estate license so Sam gave him a call. Fred found this great deal on a bank owned condo for only $60,000.
Sam digs in his piggy bank and pays cash for the condo and quickly finds a tenant. Life is good.
Sam got the bug and bought more properties. And wants to buy even more. Sam hit his credit limit with his bank so he went to refinance the little condo he bought in June 2009 for $60,000. And then he noticed the RED FLAGS that both Sam and Fred, brains clouded with inexperience and the excitement of their first deal, ignored at the purchase. Stuff like in the MLS listing:
*Most lenders REQUIRE that you use their title company.
* If buyer chooses to use seller’s title company, seller will furnish title insurance for buyer at seller’s expense. Otherwise the Buyer must pay.
*Title companies assigned by the seller are experienced with their policies and can answer any questions your lender may have regarding title work, power of attorney, etc.
I saw this language a year ago when I purchased a bank owned property. I ignored it, paid a little extra, and used the title company I trust. The one that consistently finds problems the previous title company missed. I want to learn about title problems when I BUY, not when I sell or refinance.
And language I saw this week for a townhome I'm writing an offer for (yes, a short sale that the seller's don't smoke!) has a whole page of reasons trying to persuade me to use the seller's title company that they require me to sign, including: “If buyer chooses to use a title company other than seller's title company...Results of title exam may prohibit the property from ever closing.”
That's the whole point of title work! Some deals SHOULDN'T close.
But Sam and Fred, new to the business, didn't understand anything about title work and thought all title companies were the same. Sam is getting the lesson now.
It appears that back in 2006 a second mortgage for $39,000 was recorded before the first mortgage. The first mortgage holder bank foreclosed and got the condo back and sold it to Sam via an auction in June 2009. The second mortgage was not cleared in the foreclosure because it was recorded first. This was disclosed in the closing documents but neither Fred nor Sam caught it.
Sam's title insurance policy, from the Seller's title company, has an exclusion for this lien.
The auction house and the closer told Sam the title was free and clear.
The lien holder has not contacted Sam and Sam thinks the lien holder thought the $39,000 was wiped out with the foreclosure. Sam is not sleeping well since he learned of this mess.
What would you advise Sam to do?