Closing agent says my title is defective

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Closing agent says my title is defective

Mike Nelson
Investor · Miami, FL · Member since 2012 · 136 posts · 5 votes

I bought a HUD home to flip awhile back that was foreclosed on a deceased person. My closing from HUD went fine and I was issued a policy. I am now in the process of selling and the new Title Companies underwriters are saying the foreclosure "was not done properly" and needs to be re-foreclosed.... are you kidding me? They state because there is no documentation in the public record for the attorney to find heirs or interests. How did my first title company miss this? How long should my first title company take in researching this and getting back to me? Does HUD hire fly by night attorneys to do their foreclosures. I tried contacting the Closing attorney listed in the public records through phone and email, and as you would expect, he is not getting back to me. However, I researced him, and he appears to work for a reputable Law Firm that deals specifically in foreclosures. There was also probate documents not available online in public records, and you have to visit the clerks office to verify them. Possibly the underwriter was lazy? I dont know, this just seems like underwriter ridiculousness at its finest.. anyone dealt with this?

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Greg H.Pro Member
Moderator
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
10y

@Mike Nelson

Mike-

Your best option that has been mentioned already is to get the original title company to underwrite another policy.  I would go above the basic office staff and speak with the examiner/underwriter.

Additionally, you can initiate a claim through the underwriter of the policy.  While there are tens of thousands of title companies in the US, there are basically only 4 underwriters of title insurance.  Consult your policy as to how to initiate a claim

To clarify a few other things. HUD did not due the foreclosure on the property. The lender used their attorney(Although most counties will only have a couple of Attorneys(Trustee in some states) that do the actual foreclosure.

HUD in all cases transfers properties via a Special Warranty Deed

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  • Jeremy Tillotson
    Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
    10y

    @Mike Nelsoncall the company where you first closed and see if they will issuse or reissuse the policy for the buyer.

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  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    I hope I dont I just bought a HUD home but I wont find out for a couple of years . I might do a title search after a year to check I think your title insurance should cover you

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    Yeah, this can be a problem with REO's, they usually use the same attorney office for the closing, that did the foreclosure. So, no one is really looking over the foreclosure, other than the ones that did it! Another reason I ALWAYS recommend using your own title co., not the bank's, to do the title policy and closing. I don't know the requirements for heir notification in a foreclosure, but as you said you can read all the probate doc.s at the clerk's office. You can also see the actual service returns for the defendants in the foreclosure there, in that case file.

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  • Michael Mcghee
    Wholesaler · Memphis, TN · Member since 2015 · 49 posts · 28 votes
    10y

    @mike nelson

    There are a couple of solutions I would try. First I would ask the new closing company to back their policy to my old policy. This is a common occurrence in title insurance situations. So the old policy would have to cover anything prior to your purchase. The second thing I would do is ask the buyer to close with the previous company I closed with. Hopefully the new company has not scared them away. 

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  • Mike Nelson
    OP
    Investor · Miami, FL · Member since 2012 · 136 posts · 5 votes
    10y

    Well I used my title company when I closed with HUD. I never had a problem with them before. They underwrite all my closings which have all been REO or HUD. But now its been 2 days since I presented this to them and they aren't returning my phone calls. So Im getting a little ticked off.

    Thanks for the advice Michael Mcghee, Im not familiar how the Back Policy thing really works, but it was my hope to switch title companies (if i can get the buyer to agree)  and close with My title company that issued me the first policy.

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    If the REO sale closed with a Quitclam you certainly are in a fix. The title insurance should be liable for not informing you. With a Warrant or Grant deed, you have cause for action against the title company.

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  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    Give the title company another call or two. People get really busy this time of year with closing out year end business, holidays, etc. Unless they are closed and out of business give them a little time. If they don't respond in a few more, make contact again. If you got a title policy it is their problem to resolve. A recent speech by a local attorney stated that a high percentage of closings/title policies have undiscovered issues until the new owner goes to sell. I believe the figure quoted was around 30%.

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    @Mike Nelson

    Mike-

    Your best option that has been mentioned already is to get the original title company to underwrite another policy.  I would go above the basic office staff and speak with the examiner/underwriter.

    Additionally, you can initiate a claim through the underwriter of the policy.  While there are tens of thousands of title companies in the US, there are basically only 4 underwriters of title insurance.  Consult your policy as to how to initiate a claim

    To clarify a few other things. HUD did not due the foreclosure on the property. The lender used their attorney(Although most counties will only have a couple of Attorneys(Trustee in some states) that do the actual foreclosure.

    HUD in all cases transfers properties via a Special Warranty Deed

    2Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    10y

    The obvious first solution is to use the same title company and closing agent as used to acquire. 

    It may be helpful to understand how title companies work for future deals. Each policy is typically issued based upon a 'starter' which goes back to last insure sale (by a currently operating title company with a reciprocal agreement). All transactions subsequent to last sale are scrutinized., especially if uninsured

    As to the foreclosure, if this was a judicial foreclosure that was until matey taken to sale, I guess I could envision a problem with noticing and due process, but how much due diligence is required in your state? Find unknown heirs? Really?

    In CA, a non-judicial foreclosure is completed with a Trustee's Sale Guarantee which is relied upon for purposes of noticing by mail, posting and publishing. I believe judicial states rely on a litigation guarantee that lists all creditors and parties of interest.

    You may be able to resolve by accepting a certain amount of undetermined risk (risk reversal) via offering indemnification. 

    There is definately value in establishing and maintaining a relationship with a title company. And, there's a cost (and risk) of deviating from using your own team.

    1Reply
  • Mike Nelson
    OP
    Investor · Miami, FL · Member since 2012 · 136 posts · 5 votes
    10y
    Originally posted by @Greg H.:

    @Mike Nelson

    Mike-

    Your best option that has been mentioned already is to get the original title company to underwrite another policy.  I would go above the basic office staff and speak with the examiner/underwriter.

    Additionally, you can initiate a claim through the underwriter of the policy.  While there are tens of thousands of title companies in the US, there are basically only 4 underwriters of title insurance.  Consult your policy as to how to initiate a claim

    To clarify a few other things. HUD did not due the foreclosure on the property. The lender used their attorney(Although most counties will only have a couple of Attorneys(Trustee in some states) that do the actual foreclosure.

    HUD in all cases transfers properties via a Special Warranty Deed

    If I transfer title companies, wont there still be an issue with the title (if there really is)  Can you explain the purpose of the claim and how that would work?

    0Reply
  • Matthew Kassel
    Tampa, FL · Member since 2015 · 6 posts · 8 votes
    10y

    Mike,

    I hate to be the bearer of bad news, but there's unlikely to be a quick fix for this issue. As a FL licensed real estate/title attorney, I've dealt with many issues like yours. Since I don't know the exact foreclosure issue (there are several), some general considerations are as follows:

    If you purchased an owner's policy of title insurance, you should tender a claim with your title insurer. Assuming you meet the threshold legal criteria to tender the claim, your title insurance company will determine whether the issue is covered. If the issue triggers coverage, the company may step in and either resolve the issue (several ways to resolve), deny your claim, or provide a letter of indemnity. A LOI would allow the sale to move forward (assuming the LOI is an acceptable method to address the issue). Since HUD has already foreclosed and sold the property to you, the foreclosure cannot be unwound and refiled. If the issue requires litigation to clear, it will take at least a few months (depending on whether it is contested).

    If the title insurance company does not take action to resolve the issue or move your pending closing forward, I recommend retaining a good dirt lawyer with title resolution experience. Good luck!

    Matt

    2Reply
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