Clean title -> Countrywide corrected a mistake -> Mortgage Appeared - Need Help!

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Clean title -> Countrywide corrected a mistake -> Mortgage Appeared - Need Help!

Andrew Clark
Rental Property Investor · Raleigh, NC · Member since 2009 · 90 posts · 52 votes

Bare with me...

Key facts:

Shane bought a home in 2006 with a Countrywide mortgage. Countrywide recorded their lien using the incorrect 'legal description' of the property.
Shane stopped paying his mortgage somewhere in 2008.
Shane sold his property to Daniel in 12/2009 for $25K cash. Daniel did NOT get title insurance or have a search completed (a bit fishy).
I purchased said property in 3/2010 for $60K cash after I had a title search completed (free and clear) and purchased title insurance. It came back free and clear because Countrywides incorrect legal description of the property did not link this mortgage with the property.
Countrywide decides they should pursue a foreclosure against Shane. They realized their 'legal description' issue and miraculously correct it. BAM!!! All of the sudden there is a mortgage on my once free and clear property.

I have already rehabbed this property and have a closing date set with buyers utilizing the 8k tax credit. I've been advised if I am not able to sell this property, the buyers will sue me for their 8k tax credit loss and their re agent will sue for the loss of commissions.

My question is, what right does Countrywide have to just 'update' their originally incorrect filing. Keep in mind, their update didn't happen until two deeds after their original owner. I understand when a mortgage is granted the grantee signs documents agreeing to help correct any typos and filing errors, but I didn't agree to any of that. I understand Shane was trying to pull the wool over everyones eyes (probably in cahoots with Daniel), but I want to know if this magic mortgage appearance is legit or will Countrywide have to eat this mistake once pressured?

I am meeting with my lawyer in the morning to sort through this mess.

For as much of a mess this is, I am looking forward to getting knee deep in new information. You can't learn this in a book!

Any advice will be greatly appreciated!

Thanks!

Andrew

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y

WOW! This is a serious bummer! I don't see that you did anything wrong, and ended up in this bad position. That really sucks!

Your title insurance is the starting point. I assume you did get title insurance when you bought the property. They may well have enough exclusions to avoid paying, but they're the starting point.

Daniel, and probably Shane, will also need to be sued. From your description, it sounds like Shane realized the mortgage wasn't properly recorded and sold the property to Daniel specifically to further obfuscate the title. You've been defrauded by these two, and you're going to have to sue them. The title company may or may not be helpful.

Daniel may well have been defrauded by Shane. If they're buddies, I'd guess they are in cahoots. If Daniel's just a sloppy wholesaler, maybe he got defrauded, too. Doesn't really matter. He gave you a warranty deed guaranteeing clear title, so he's your first target.

Yes, almost certainly, Countrywide has the right to fix the error. You've been to enough closings to know there is a form you sign as either buyer or seller specifically stating you'll help fix any errors like this.

Glad you're getting legal help. This is going to be ugly. I expect the buyers and thier agents are going to sue you. Whether they will win or not is the question. They may think they have a good case, but I think they would have to prove intent on your part. Doesn't sound like that's the case, and your lawsuits against Daniel and Shane should help shield you. I suspect this will all pan out that the property goes back to Shane, who gets foreclosed on. You, these buyers and their agent will all end up winning judgments against Shane and maybe Daniel. Daniel could also end up with a judgment against Shane. You'll be out your rehabbing expenses, the buyers will be out their $8K tax credit, the agent's out their commission. Daniel may be out his $25K. Shane will turn out to be broke and you'll get nothing from him.

This one is definitely an interesting learning experience. Please do keep us posted on how this unfolds.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    WOW! This is a serious bummer! I don't see that you did anything wrong, and ended up in this bad position. That really sucks!

    Your title insurance is the starting point. I assume you did get title insurance when you bought the property. They may well have enough exclusions to avoid paying, but they're the starting point.

    Daniel, and probably Shane, will also need to be sued. From your description, it sounds like Shane realized the mortgage wasn't properly recorded and sold the property to Daniel specifically to further obfuscate the title. You've been defrauded by these two, and you're going to have to sue them. The title company may or may not be helpful.

    Daniel may well have been defrauded by Shane. If they're buddies, I'd guess they are in cahoots. If Daniel's just a sloppy wholesaler, maybe he got defrauded, too. Doesn't really matter. He gave you a warranty deed guaranteeing clear title, so he's your first target.

    Yes, almost certainly, Countrywide has the right to fix the error. You've been to enough closings to know there is a form you sign as either buyer or seller specifically stating you'll help fix any errors like this.

    Glad you're getting legal help. This is going to be ugly. I expect the buyers and thier agents are going to sue you. Whether they will win or not is the question. They may think they have a good case, but I think they would have to prove intent on your part. Doesn't sound like that's the case, and your lawsuits against Daniel and Shane should help shield you. I suspect this will all pan out that the property goes back to Shane, who gets foreclosed on. You, these buyers and their agent will all end up winning judgments against Shane and maybe Daniel. Daniel could also end up with a judgment against Shane. You'll be out your rehabbing expenses, the buyers will be out their $8K tax credit, the agent's out their commission. Daniel may be out his $25K. Shane will turn out to be broke and you'll get nothing from him.

    This one is definitely an interesting learning experience. Please do keep us posted on how this unfolds.

    2Reply
  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    16y

    Qualified legal representation is certainly the route to go. I hope your lawyer is a Bulldog.

    I'm not an attorney but I would want to know what property description was originally filed at the courthouse. Are that document and the description legally binding on Countrywide and Shane and Daniel?

    How "off" is the description? Is it off by a few feet in measurements or is it an entirely different property?

    Please let us know.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y

    There is a short sale in my area that has a similar type of situation, where there is a lien recorded against the wrong parcel number (looks to me like a mix-up that happened at the lender during a refi). I'm curious to see how this pans out as well.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, I bet your attorney will say something like...that Countrywide was in error and they have insurance to cover the error. An E&O policy not title ins. If a claim is made the E&O insurance company will subrogate against Daniel and Shane. They may go to Shane too, but only if they have proof that Shane had or should have had knowledge, he might not. Back to Countrywide, they can refile a security agreement made by a previous owner on a property but they will likely clear it to facilitate the sale after seeing the judge. As to your buyer suing you, you might be sued, eventually Countrywide and Daniel need to answer to you and your buyer. You have a real mess! I just went through a very similar thing with a friend of mine owning two parcels and the bank took the wrong one, a vacant lot!Bill

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    IMHO, Shane know good and well what was going on. He bought the property and took out the loan. Somewhere along the line he figured out the loan didn't show up against the property. He sold it to Daniel and pocketed $25K in cash. The question in my mind is whether or not Daniel was aware of the loan. Shane certainly was.

    I also suspect Shane has little or no assets. Even if all the judgments ultimately end up against him, he won't pay.

    1Reply
  • Andrew Clark
    OP
    Rental Property Investor · Raleigh, NC · Member since 2009 · 90 posts · 52 votes
    16y

    Thanks for all the info and advice!

    I spoke to my investor and our attorney. We are having a full title search completed and it looks as though my investor will be covered for this entire investment (minus potential profits). In addition to my investors policy paying out (which covered the cost of the house plus renovations), my policy (which covered only the purchase price) may also pay out to some extent. This still leaves our potential buyer and agent freedom to pursue a lawsuit against me.

    It's still too early to tell exactly what the outcome will be.

    Kevin, I don't have the documents in front of me w/ the difference in the legal description. If I remember correctly it was the correct location but some key verbage was left off the end of the description.

    Jon & FinancialExaminer - Shane absolutely knew. Jon you hit the nail on the head with Shane's devious plan.

    Another little tid bit to further implicate Shane and Daniels mutual understanding of the situation... Daniels email address contains Shanes last name. It's not that common of a last name. I suspect they are cousins or brothers, father/son...

    Thanks again!

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    Legal descriptions are usually something like "Lot 15 of the Shoemaker addition filing 12". Leaving off the "filing 12" could result in it being attached to a different property.

    If I were you I'd file suit immediately against Shane and Daniel. This appears to be clear intent to defraud. You may be able to get a judgment for not just actual damages but punitive damages. Further, by filing suit against these two, you may reduce the impact of the suits from your buyer and the agent. The suit would show you're defending your position.

    Of course, do whatever you lawyer is advising.

    There is no doubt that if the title companies pay out, they will file suit. But you have damages above and beyond what the title company pays out, so I'd pursue it myself.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi agree with Jon, you need to follow through and sorry I got the two switched above.....with the additional info, it's pretty clear they were in kahoots here!

    To your title insurance, please get back to us on that. Don't know what your state title insurance requirement is, but the standard title insurance policy, (B II Exceptions) states as an exception to coverage are "liens or encumbrances not shown of public record". So if a lien is not recorded and is later recorded after settlement, the loss arising from that is not covered. That is why there is a final running of title prior to filing a lien after settlement. Now, that said, it may be tto that your title isnucrance company covers the improper filing of liens which they may pay and then subrogate against the filing party ....please keep us informed....very interesting.....Bill

    0Reply
  • Andrew Clark
    OP
    Rental Property Investor · Raleigh, NC · Member since 2009 · 90 posts · 52 votes
    16y

    Update: Nothing huge has happened - still in limbo. The title company sent an appraiser out to the property about two weeks ago and said the issue will be settled by the end of July. For some reason the title company has been saying they are waiting on the appraisal. It's a he said she said game now. All inner office BS.

    The payoff amount for the mortage has ballooned to 146K up from the original 108K (granted in 2006). Fees, interest, legal...

    The AC unit was stolen about 1.5 weeks ago and the house is looking abandoned. My attorneys advised to turn off the utilities and to stop cutting the grass. It looks terrible.

    As for the buyers, they are apparently still interested in purchasing and were having financing issues - they are finally ready to close and we have no idea when or if we will be able to sell the property.

    All in all, it's a very educational nightmare.

    I'll keep BP updated.

    Thanks,

    Andrew

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