Old lien... How to proceed?

16 Replies

Hi BP community!

I have a property under contract that has a lien from 1976 that has not been recorded as satisfied. House was sold in 1978 and then again in 1985, and I am purchasing it from the heir of the person who bought it in 1985. 

The seller can't find any of the documents from the 1985 purchase, and the lender on the 1976 loan is no longer in business - it was acquired by a different bank which was subsequently acquired by a third bank. Purchase is now on hold because of this, and it looks like my two options would be to walk away or take the risk and purchase it with this lien as exception on the title insurance. Has anyone faced this before? How did you proceed?

How much is the lien? Usually you do a "quiet title action" to clear it up.

I asked you how much as lenders sometimes ask you to put something into escrow, which happened to me and release the funds once it's cleared up. In my case, it was discovered when I refinanced, and the first title company missed it, and I could've gone after them, but takes time. At the time, rates bottomed out, so I waited for the resolution of the matter, rates might have gone up, so the escrow solution was the fastest way. And the amount was small.

From the looks of this, some title company in the past missed it, so it could be safe to do an exception to the title insurance, and either do an quiet title action, and in the process, get after the title insurance companies in between that missed it.

BTW, I gone myself to research documents, and in the 1970's, many systems were manual, and documents were misfiled or lost in the process of computerizing. I had to find a fire department approval from 1939, and they couldn't find it, and someone on line told me to come back as it's probably a misfiling, as those files weren't computerized. Took me three trips before they found it. If they couldn't find it, my fire escapes were not up to code for the 70's, would costs me several thousand dollars to update, with it, I'm grandfathered from 1939, the year of the approval.

The answer depends upon where the property is located. 

Every bank has a successor... one method is to determine who can release the security interest. Is there a trustee named in the instrument?  The bank may not have records but the trustee can release it. Does the seller have an owners policy? If so there may be an inter-underwriter indemnification agreement that resolves this unreleased item quite quickly. Otherwise the current title insurer could obtain a letter of indemnity from the seller's title insurer.

Lots of ways to resolve this other than agreeing to an exception.

@Frank Chin Thanks for chiming in. The lien amount is just under $20k. Property is under contract for $70k. Title company is asking for 1.5x the lien amount in escrow. Problem is that we could not find any closing documents from prior transactions so we do not know who the title insurance company was back then. While I have no problem putting 30 k in escrow for a couple of weeks, having it in escrow indefinitely is not something I want to do. How much would quiet title action cost, and is it the seller's or the buyer's responsibility usually?

@Tom Gimer Thanks for your response. The bank was Loyola Federal Savings and Loan, the successor should be SunTrust. The seller inherited the property from his mom, who purchased it in 1985. Seller was not able to provide any of the documents from that 1985 purchase. Apparently the title search was not able to find who the title insurance company was in that transaction or the prior one in 1978; presumably there was at least lender title insurance because the purchases were financed. 

Just several ideas I have and it would help if you could answer several questions too.

First, let me say that I am disappointed that your current title company's resolution to this problem is to hold back an escrow, which in my state is called a Title Indemnity. 

You stated:  "I have a property under contract that has a lien from 1976 that has not been recorded as satisfied." 

Question:   Assuming the current title company told you about the lien, can't the title company give you/find a copy of the 1976 "lien" document?

Question:   Was the lien a mortgage which a title company in the past would have recorded?  Or was it a different kind of lien (probably not recorded by a title company)?

Question:   Assuming your current "brilliant" title company did only a 20 year search, can't the title company search back BEFORE 1976 and obtain a copy of the Deed into title of the person who owned the property when the 1976 lien was recorded?

Why?   I know this is a long shot but in Illinois, the title company recording the deed and mortgage will stamp their name and the policy file number on the deed/mortgage itself before recording.

Question:   Does the "lien" recorded in 1976 have any information on it referencing a title company (mortgage at purchase or refinance?)?

Question:  Could you find information on the deed of the person who took title before the 1976 lien was recorded?

Question:   Can the current title company give you a copy of the 1978 recorded deed?, the 1978 mortgage recorded with the deed? and the 1985 recorded deed and mortgage?   All of which may have some indication of what title company recorded those documents?

If you get lucky and you find the name of the title company that did the 1978 and/or 1985 recordings, it is possible that you can order a "Hold Harmless Letter" that can be used to obtain insurance coverage on this issue from your current title company.    

If you think these may help you, I'll tell you more about how to order a "Hold Harmless Letter" from the previous title companies.

Good luck.

I just realized that a lien recorded in 1976 would be almost 43 years old.

Depending on what kind of lien it is, I am wondering why the title company can't consider insuring over the lien based on the age of the lien or possibly allowing you to pay a premium of $ 1,000 for them to take the risk and waive/insure over the lien.

I don't know who you are dealing with at the title company but you should demand that a title company underwriter review the 1976 recorded lien document.

The underwriter may have other ways to deal with/insure over this lien that's 43 years old.

Good luck.

Quiet title action if there is no longer an entity that exists and will confirm the lien.   You can't really buy that property without a contigency to remove the lien.  Is the hassle worth it?

@Clint Votruba  I'll try to answer the questions in order. I assume they can provide me with a copy of it if I ask for it, but so far they just gave me the relevant information, which is - lender is Loyola Federal, the document is a 30 year fixed mortgage. They pulled the other deeds, but nothing on them indicated who the title insurance was back then, and they are saying that no one is still around - prior owners, closing attorneys etc. Given that this was 43 years ago, I can understand that. Their first approach was to try to get the indemnity letter, but with no way to find out any of the prior title insurance companies, that didn't work. 

They basically gave me 3 options: 1) Buy the property subject to that lien, with no title insurance; 2) keep 1.5x the lien amount in escrow until this is resolved, which could take weeks or months, and 3) Wait until they obtain release for that mortgage, which could take weeks or months (seller is not willing to wait). 

Rumen Mladenov in Illinois when I work as a Seller's attorney, an important part of my job is title clearance, collecting the required documentation that will cause a title company to either remove an offensive title exception or insure over it.

I've been in your situation and it's very frustrating and I'm frustrated right now and it's not my transaction.

I have several other ideas.

You could contact the SunTrust lien release department in a well worded letter, telling them that you are trying to clear up a lien in a real estate transaction, give them a copy of the recorded lien and give them a copy of the title commitment.  Ask them for assistance in finding out if the lien has been paid off and if so, can they issue a release.  No kidding, I've had some luck here where a lender has agreed to issue a release (fee or no fee) and overnight/fedx the release to me (fee or no fee) and it didn't take a week to receive it.

I don't admit this to many people but the other way is what I call a "shotgun request".  In any request for a Hold Harmless Letter, you would deliver to a previous title company (a) copy of your CURRENT title commitment with the old lien stated in an exception and (b) copy of their (title company you are writing to) PREVIOUS title commitment/policy or Alta/Hud Statement they issued on the same property where they either paid the lien off or they insured over the lien.  If a PREVIOUS title company gave a previous owner or lender clear title on this issue (waived it or insured over it) they will issue a Hold Harmless letter to your CURRENT title company.

In your case, you don't have any title commitment/policy issued by the PREVIOUS title company.

So, what you would do is still make a request for a Hold Harmless Letter, stating they issued title on a PREVIOUS transaction BUT only give them (a) a copy of your CURRENT title commitment with the old lien stated in an exception and (b) of copy of the PREVIOUS recorded lien/mortgage.

Most title company Hold Harmless Departments will still do a search of their records based on the information you have given them.

You might get lucky and have a title company come back and tell you that they were involved in a PREVIOUS transaction with this property, perhaps the 1985 sale etc. OR I've had title companies come back to me with an explanation of how to remove the lien at no cost etc.

It might sound unethical but if the letters are written correctly, the title companies who receive your written request will try to find if they were involved in a previous transaction where they paid off or insured over the unreleased lien. In Delaware, the major title companies are Chicago Title, First American Title, Ticor Title, Fidelity National Title, Republic Title, Stewart Title and, Lawyer's Title.  However, don't expect your current title company to send out 7 letters to 7 different title companies.

Good luck.

Originally posted by @Rumen Mladenov :

@Brian Ploszay They mentioned quiet title action as a last resort, and said it would cost up to $3-4,000. Not sure if it is worth the hassle, when I put it under contract I had no idea I would have such an issue... 

 1) Let me start off by saying congrats on getting something under contract. I know it's been awhile since you've found a deal that met your criteria. 

2) Consider the fact that you have a seller interested in selling and that now that you've uncovered this issue during due diligence, the seller is required to disclose it to anyone else the sell to. Which means whatever you ask for, chances are someone else will ask for as well. You'd be better off asking for an additional price reduction of $4k to cover the cost of quieting the title than walking away and letting someone else potentially get the deal. 

Originally posted by @Rumen Mladenov :

@Tom Gimer Thanks for your response. The bank was Loyola Federal Savings and Loan, the successor should be SunTrust. The seller inherited the property from his mom, who purchased it in 1985. Seller was not able to provide any of the documents from that 1985 purchase. Apparently the title search was not able to find who the title insurance company was in that transaction or the prior one in 1978; presumably there was at least lender title insurance because the purchases were financed. 

Lender’s TI won’t help here... you need the seller’s mom’s 1985 owners policy.

You still haven’t identified the property location (to my knowledge). If Delaware, as an attorney state there would have been an opinion of title issued in connection with the 1985 acquisition. The same attorney could release the lien they presumably paid off in 1985 using the procedure outlined in the DE Code. Your title insurer could also accept an indemnity agreement from your seller. Still plenty of options... post the location for more precise help.

 

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Update for those who followed this thread. I negotiated to split the estimated cost of a quiet title action ($3,000/2 = $1,500) with the seller, and purchased the property subject to the old lien. I will try to clear it on my own, sent an email to the lien release department of the successor bank already. Unfortunately the picking is very slim in my market, otherwise I would have passed on this one and moved on to the next one. I hope I don't end up regretting it...

I've got $100 that says you're fine and that the release request you generated in-house just saved you $1500 on the purchase price if you got this as a credit rather than a shared future expense. You sent a copy of the unreleased instrument (with a loan # on it) to the lender along with the release request, right? 

Would anybody like to cover this wager?

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