Title errors last minute, now must pay rate lock extension fee.

4 Replies

I love that real estate tests my problem solving abilities at each and every turn. I got thrown a curve ball this week. Before I relent and go with the flow or stand my ground and ask for compensation, I need some advice.

I am buying a rental property and it was supposed to finally close last week, contract date is 08/22 and closing date was to be 10/03. However, the day before closing, errors with the legal description on the deed on the last sale of the property have delayed closing and looks like it will take another week at least to get clear title. The bank is hitting me with a rate lock extension fee because the transaction hasn’t closed. I want to know if I am being reasonable with believing that other parties, like the title company, seller, or a particular title insurance policy should compensate me for the fee. Or if banks routinely waive the fee upon request.

Some thoughts I have are: Shouldn’t the title company have caught this error sooner and compensate…why should I have to suffer because they waited until it was too late? What about title insurance policies, either the one that I am buying or the seller’s from when he bought the place, couldn't they be invoked to make everyone whole? If this isn’t covered by some title insurance policy, mine-to-be or the seller's, then what good is title insurance anyway? Do I own that title insurance policy yet since I haven't closed? Should I ask for compensation from the seller directly since he can’t give me a clear title? If the transaction did close and then the error was caught in a month or a few years from now, then fixing it would be covered by title insurance so why can’t it be invoked now? Should I just ask the bank to waive the rate lock fee, do they frequently do that upon request?

@Larry Bowers I know this is frustrating but from my experience the buyer is going to have to pay for the rate lock extension. You don’t have title insurance yet because you haven’t closed. The sellers title insurance may pay to correct it (if they have it) but it still wouldn’t pay for your rate lock ext. Getting the loan is the buyers responsibility and any associated costs with getting it would fall to the buyer. Due to the title issue you could ask the seller to pay, I have seen this work a few times but typically the seller doesn’t agree to it. I have more often seen the Lender eat the cost but it depends on the Lender and terms of the loan. If it’s a smaller loan or one that isn’t bringing in that much money they may not agree to it. It could be worth a try to ask both. Depending on the loan and how much the rate has changed and the length of the extension, typically the cost is minimal in the grand scheme of things. When i run numbers for myself or my clients I typically work in some costs to cover the unknown as there is always something that comes up. Good luck and let us know how it turns out. Aaron

@Walter @Aaron Poling Yeah, it's on me to cover my loan expenses, I agree. So far, it's not a lot of money here, just ~$200, but it could be more if we can't close this up this week.

I am expecting the title company to tell me that stuff happens and it's not their problem, that's just the way it goes and I just have to deal with it. Seems like title work is done last minute under duress and is driven by the closing date, not by the contract date.

I see a lesson learned perhaps, but Walter, do you agree that when buying the next property to notify the seller to order title work sooner? When would you say would be the best time to start that, right after the house inspection comes back favorably? 

This is hard for me to answer because things are done so differently from state to state depending on laws and traditions. I will answer how it typically works where I work but this may or may not apply to your area. 

In my area the buyer is paying for the title work, as it is the buyer that wants to ensure clear title. It is essentially like having a home inspection done to make sure the property is in good condition, but its an inspection of the title so it falls under buyers expense. The title companies and attorneys that I work with will do the title work as soon as we want them to, but once its done it needs to be paid for.  This is where it typically gets delayed. If you do title work up front and anything causes the contract to fall through, you would still have to pay for the cost of the title work. Most decide to wait until closer to closing so appraisal, inspections, etc... have been cleared and the likelyhood of things falling through is reduced. 

I do know that in some area's the seller pays for the title work, but the rationale would be the same. They typically want to wait until other things are clear so they don't get stuck paying for something that doesn't close. 

One way you could protect yourself from this would be to add a contingency that if the seller delays closing they are required to pay so much towards your expenses. If you are in a highly competitive market the sellers may not agree to this, but it could be worth a try and would limit your risk. 

In your current deal you probably need an extension. If the seller is highly motivated you could say that you will extend but if goes past the first extension that the seller has to pay your next extension. If you do it while you are negotiating an extension, you will have the most leverage. They may agree just to make sure the deal doesn't fall through

Keep me posted on how it turns out. Aaron

@Walter @Aaron Poling

Just circling back, Walter. Seller paid for the extension and, a rather magnanimous act considering he is much more experienced in real estate than I am. Ended up buying another house from him. I have to say I would have done the same in his position.