Title insurance/warrenty deed still issue with tile on refi

7 Replies

Hey bp!

I’m having an issue and I was hoping someone has experienced something like this and could get me some advice.

Long winded backstory...

I had a property brought to me by wholesalers, I signed a purchase agreement with them. My private money guy looked at it, and didn’t like it. He had his legal team look at it and they said it was a worthless contact and there was more holes in it that Swiss cheese. I later found out their practices were illegal, and just trying to make money a sleazy way.

So I did the real estate investor thing and I hustled! I tracked down the owner and worked out a deal with her and we closed.

The weeks leading up to closing I kept these so called wholesalers on the hook, keeping the deal “alive” at least in their eyes. Just to keep them busy, you know slide of the hand.

The owner and I closed the deal back in April of 2019. I paid for title insurance and received a warranty deed. I renovated it got it rented, seasoned it, and then did the BRRRR thing and started the refi process. Jumped through all the hoops and finally got the clear to close, and then 3 days before closing the title work came back with those "wholesalers" showing interest on the title dated a month before I originally closed.

My questions are; first off how was I able to close the first time? And second title insurance and warranty deed should cover me so I shouldn't be dealing with this issue. And third how do I resolve this? I highly doubt I could ever get into contact with the wholesalers again, and if I could I'm sure they wouldn't be to willing to help me out after I kept them from gettin an illegal pay day.

I thank you for any advice in advance!

-Chris

Does the "section B2" ("exceptions" if I remember right) of the title insurance policy mention their lien/interest? If so the title people found it put I guess didn't verbally tell you about it.

I am not at all competent at legal matters, but the fact that you had a contract and then tried to basically pull a sneaky on the wholesalers may suggest you need a little extra legal help than normal. 

If this was straightforward "mystery claim", I'd say just call the title insurance company, but I could imagine them somehow getting out of the claim due the contract and possibly "less than 100% honest" negotiations with the wholesaler.   If this lien is in section B2, then I think they will tell you to hit the bricks. 

If you have access to an independent attorney, may be worth a few bucks to have him/her consider the full situation before you make your next move. 

@Tom Gimer is a title attorney and can likely enlighten us here.

From my laymens view, your title insurance I think wouldnt cover it, as you knew of someone else holding an interest in the property, and did not disclose that fact to your title rep.

Thanks for the tag, @Russell Brazil ... 

Here are two exclusions you are referring to which arguably may apply here: 

... 3. Defects, liens, encumbrances, adverse claims, or other matters

(a) created, suffered, assumed, or agreed to by the Insured Claimant;

(b) not Known to the Company, not recorded in the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed in writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy;

    Regarding OP's question about HOW this could have closed in April 2019... it's likely the good-through date of the title search was prior to the date of the recording of the equitable interest. In other words, the item may have fallen in the "gap" between the effective date of the search and the closing. 

    If the recorded contract / statement of equitable interest was discovered by the title company before the April settlement, they would NEVER have closed the transaction without first obtaining a release. 

    @Tom Gimer

    I was 100% honest with the title company about the wholesalers, as I stated my private money guy had his legal team look at the contract with the illegal wholesalers. In addition the title company and their legal team looked at the same document from them, all before my private money guy would move forward.

    I understand it could have falling in the “gap” and I do believe that is what happened. I had no idea the so called wholesalers filed anything with the county, and to my knowledge neither did the title company.