Condo in escrow has lien, what should be done?

Question

We are in escrow, and have learned that there is a reverse mortgage on the condo in escrow.
The buyer assures us that he has enough funds to cover anything debt over the purchase price. We are of course concerned that he would sell it even when he owes more than the sales price. If it turns out he can't sell it, what recourse do we have besides pulling out? We've already paid for the building inspection, appraisal, and may have other costs.

Keith Barton · Answer

It occured to me after I posted the 1st response, there may be 1 other long-shot option....

When did the title company 1st do a title search (the title company usually does its first search as a thorough search, then will perform a second search at the last minute (more or less) that checks for things that could have arisen since the first search was done. Even without a final title search and without a finalized title insurance policy, there is sometimes a sort of preliminary title insurance after the initial search is performed.

See if you (or the realtor) were issued any paperwork from the title company about any initial search - then see if the initial search had any guarantee on it. Preliminary title searches sometimes will state (I forget the exact language...) something to the effect that the search is guaranteed up to a certain amount. Again, I wouldn't hold my breath - but it is definitely worth checking out.

Keith Barton · Answer

Speaking in practical terms - you are probably stuck with whatever happens.

Regardless of the legal "protections" you have (or don't have as the case may be...), the real question is - it sucks that you spent $1k out of pocket, but how much are you willing to pay and how much effort are you willing to expend to get that $1k back?

You see, even if the contract allows for liquidated damages, or allows for other damages (which is doubtful if it is a state standard real estate contract - but honestly I can't say without seeing it...); and, even if CA common law recognizes Promissory Estoppel - it all still comes back to - how much are you willing to spend to get that $1k back.

There are 2 legal requirements to "win" a lawsuit, and there is another purely practical requirement to "win" a lawsuit:
1) Legal Requirement - someone performed, or failed to perform, an act - and the performance, or failure to perform, such act allows you to sue that person;
2) Legal Requirement - The act, or failure to act, caused you damages that can be compensated; and,
3) Practical Requirement - the defendant actually has the means to pay the judgement, and taking into account the cost to get the judgment and collect the judgment, the amount of the judgment is worth the expense....

You will have 1 & 2 if the seller cannot deliver marketable title, but you will not have 3.

Mark Hu · Answer

We have a CAR purchase agreement (California Association of Realtors). It is pretty standard around here.
I was afraid of that, that we would just have to bite the bullet and pay out the 1k or whatever in expenses. Doesn't seem right though, if it is the seller at fault.

Jon Holdman · Answer

Your seller has to deliver good title. He will have to pay off this lien in order to sell.  If he can't deliver good title, the contract will be voided.  What you do after that may depend on the contract, but most contracts have very little recourse for the buyer if the seller can't complete the deal.

Mark Hu · Answer

I mean the SELLER says he has enough funds to cover any reverse mortgage debt over the sales price.