Seller Changes the Closing Attorney - Should I be concerned?

Question

Hi BP Family,

I am in the middle of closing a deal. The seller chose the closing attorney originally. Now, he wants to change from the original one to a new one. The reason was given as follows:" when the seller bought it, he agreed (and subsequently forgot) that he would have close with the same attorney who handled the tax sale for him and there was some issue that arose with the title insurance that required him to go back to that same attorney." ------ I don't really know what is actually going on. Does anyone have similar situations like this? Any red flags here? Is it normal? Also, changing of the attorney will cause the delay of the closing.

David Wandel · Answer

If I am paying I am going to use who I want/chose. I have this discussion all the time with wholesalers who try to force me to use their title company.

My response would be that I am paying so I will choose the attorney. If you want to choose the attorney then you can pay.

Here in Maryland the buyer chooses the title company/attorney.

Peter Walther · Answer

Just keep in mind that if you purchase and want to refi or sell the new lender or buyer may not agree to close with the defect even if Investor's agrees to issue another policy.  Also, in all likelihood no other title underwriter will agree to insure until the quiet title action is completed. Lastly, though it may be unlikely, if a party with an interest in the property comes back and claims they weren't properly notified of the tax sale, they can attempt to have the tax sale and all subsequent conveyances set aside.  If successful you might wind up losing the property.  That's what the quiet title action is for, to make sure all claims of interested parties were properly foreclosed.

If I were in your position and decided to accept the risk I'd do several things.  First, negotiate a lower purchase price to reflect the additional risk of buying.  Second, make sure Investor's Title agrees in writing to insure subsequent lenders and purchasers without exception.  I wouldn't want to have a title policy for $100k and a potential sale at $200k and have Investor's say they'll only insure up to the $100k of their existing liability.  Third, have Investor's agree in writing to increase the amount of my insurance at my request and upon payment of the additional premium.  I wouldn't want to have a policy for $100k make repairs that brings the value to $200k, have the tax sale set aside and have Investor's cut me a check for $100k as my recoverable loss.  Lastly, I'd have Investor's agree, again in writing, to issue a Letter of Indemnification to any other title insurer for any loan or sale amount upon request in case the lender or buyer insists on using a different title insurer.  Good luck.

Filipe Pereira · Answer

"The reason was given as follows:" when the seller bought it, he agreed (and subsequently forgot) that he would have close with the same attorney who handled the tax sale for him and there was some issue that arose with the title insurance that required him to go back to that same attorney." ------ I don't really know what is actually going on."

@Qin S. is something stopping you from finding out? This is YOUR money. These people are working FOR YOU (or to get your deal closed if they are on the other side). I'd start pressing for answers...You shouldn't have to pay for two attorneys - it may be time to ask your agent to clarify, and if they don't understand - they should consult their broker for advice.

Wayne Brooks · Answer

More importantly....read your title policy commitment Very closely in the Exceptions section, especially the B section.

Peter Walther · Answer

I'd bet there's a problem with the title that the attorney "insured over".  That means he issued the title policy w/o an exception for the defect with or without the underwriters approval.  If that's the case I would want to know what the defect is so you can make an informed decision whether to agree to take title that way.  The only way to be sure is to get a title commitment from someone other than the seller's atty.

Michelle S. · Answer

@Joe S. Good questions! The answers are I am going to look for another property. I am not getting a low enough price to justify these uncertainties.

Joe S. · Answer

Have you thought about looking for another property? Are you getting a low enough price to justify these uncertainties? I know the realtors want to get paid so they’re pushing you to finalize the deal, but they’re not going to be the one stuck with the property that has title issues.

Michelle S. · Answer

@Peter Walther yes. The deal is full of red flags. For example, the house contains two parcels, but at the beginning, the seller only provided one parcel number on the contract. I found the second one on the county board of assessors website and provided the information to my lender. Due to my lender's request, the seller added the additional parcel number into the amendment. Not sure if it is a red flag or just simple "forgot".

Michelle S. · Answer

Ok. I insisted on using the original closing attorney, my bank backed me up and FINALLY I got a detailed explanation from the original closing attorney.

The Seller acquired the property through a tax sale. When you acquire a property through a tax sale, there are typically two additional steps you need to take to perfect the title in your name.

First, you have to foreclose the previous owner’s right to redeem the property. It looks like the seller did complete this step.

Second, you have to file a Quiet Title action with a court of competent jurisdiction and you must receive a Final Order on the Quiet Title Action. The seller never performed this step, and the original attorney's title companies will not agree to insure the transaction until a Quiet Title Action has been finalized (a Quiet Title Action can take several weeks or a few months depending on the facts of the case).

The new closing attorney (the one the seller wants to change to) did issue the Seller an Owner’s Title Policy that was insured through Investor’s Title Insurance Company. Since Investor’s Title already insured the Seller, they may agree to reinsure my loan interest and my ownership interest without requiring a Quiet Title Action.

----- Now I am wondering if I should pull out, wait for the Quiet Title Action to finish or anything else? Any recommendations @BP family?

Peter Walther · Answer

If the situation is as I suspect, the commitment would be issued w/o  exception for the defect.  The thought by the agent and/or the underwriter is the defect might never ripen into an actual claim therefore the assumed risk is minimal.  Of course the purchaser/insured isn't told about the defect and so doesn't have the opportunity to make an informed decision as to whether (s)he wants to assume that risk.

Seller Changes the Closing Attorney - Should I be concerned?

Most Popular Reply