Title Affirmative Coverage Due to No Notice to Bank

4 Replies

I'm in the process of buying a 7 Unit building and a title issue came up where the original mortgage has not been shown as discharged.  The building went into Foreclosure with the bank around 2008-2010 and was sold in 2013 at auction due to tax liens by the town to Buyer A.  Buyer B bought the building from Buyer A in 2015 and never got title insurance and had a lawyer draft up everything.  The lawyer is MIA so Buyer B/current seller cannot get the correct paperwork showing the bank was notified of the sale and the town has no records of them notifying the bank as we've reached out.  Note I've even tried finding the lawyer and he is just gone, maybe he passed. 

My title company has told me they would issue affirmative coverage as its been over 7 years and the bank hasn't done anything at all, no notices to the state, nothing filed legally beyond the original foreclosure notices.  They've also said they could apply to get the loan discharged. What would you do in this case.  Note the property is $16k and the outstanding loan from 2 previous owners is over $90k. The building needs $180k in renovations so I need to be very careful what I get into as I do not want to spend that kind of $$ if this goes south.  

Just a thought I am having regarding your situation which may or may not be applicable based on the total facts of the situation of which I am not aware.

Regarding the "affirmative" coverage you receive from the title company, you want to make sure that if the original mortgage lender (or an assignee) does appear and tries to foreclose/enforce the mortgage, then the title company will defend and if necessary, pay off the previous mortgage lender their $ 80K lien AND NOT simply give you your $ 16K Purchase Price back covered by title insurance.

Will title company, if they lose a case defending a claim by the previous mortgage lender, pay that lender $ 80K even though the Owner's Policy you received at closing has insured you against loss up to the purchase price of $ 16K?

Good luck.

I had an interesting scenario with my 4 unit conversion. My sellers bought it after foreclosure, but there was a missing assignment for the mortgage.  An Affidavit of Missing Assignment was issued but it referenced the wrong mortgage.  Technically my sellers bought a building that the bank didn't have the right to sell, then I bought it.  I have a title policy in place which grants coverage in case of an issue.  Make sure your policy has marketability coverage, which will protect you in case the title issue effects a sale or refi. 

@Clint Votruba I will ask exactly that but I believe it covers the $80k if they were to try to get it back and the court ruled in favor of the bank.

@Tyler Bushey I'm going to ask this as well for the marketability.  Basically the town in this scenario sold a building they didn't have the right to sell which is the affirmative coverage is covering.

I would have a real estate lawyer review the title company's proposed policy binder. See what exceptions and coverage they are offering. If they are offering proper coverage, then it is on them so you are good to go!