Title Company refuses to close, asking seller for more documents

[Amir Kiani]

The title company (underwriter) refuses to close on the closing date (which has already passed), asking the seller to provide more legal documents of the property and the trust in which the property exists. (Apparently the property is under an LLC in a family trust)

We extended the contract for one more week, so the seller can provide the requested documents.

But my question is what happens if the closing date comes, and the seller can not satisfy the underwriter's requirements? What are my options as the buyer? I've spent hundreds of dollars on appraisal and inspection, put a move out notice for my current apartment, made arrangements for my move, etc. Do I get any money back for the financial damages done to me? I live in Texas.

Thanks for your help!

[Jon C.]

I don't know what Texas law states, but what does your contract state? What is your attorney saying? You should have your attorney serve them with a TIME IS OF THE ESSENCE Closing Notice stating that they must close by a certain date (usually 30 days from notice) or otherwise return the down payment and be subject to whatever damages at law or in equity, as your contract provides for. It doesn't seem like it's a willful default so trying to enforce specific performance would be useless and costly.

Whenever you buy from a Trust there are a lot of documents required. Organized Seller's should be able to obtain them without issue. How long have they been trying to clear title?

Alternatively, you may want to see if your title company's underwriter is being too overly cautious. Is it a national insurer (ie., Chicago, Stewart, Fidelity, Commonwealth, First American)? Perhaps a different underwriter would be willing to insure based on the documentation that Seller has provided, or is willing to take some sort of undertaking and/or affidavit. (These are purely speculative ideas, having no knowledge of the specifics involved in your title clearance issues.)

As a lesson for the future - when I am the purchaser I always include a contract provision to the effect that if Seller is unable or unwilling to close beyond any adjournment rights they must promptly return my down payment and reimburse me for the costs of my appraisal, inspections, survey and the actual costs of my title commitment and searches. If they give me push back I agree to a cap on such monetary expenditures.

Before you do any of the above, always seek the advice of your local legal counsel.

[Amir Kiani]

Thank you very much for your explanation Jon.

I don't have an attorney, and that's why I'm trying to figure out my options and see if it's worth hiring one.

But the title company is First American, and don't know if they are being over cautious. The title company has received the documents ~4 weeks ago, and it's been one week that they have requested the seller for additional documents. Even though the seller seems responsive, no luck so far in terms of producing documents acceptable to the title company.

The contract is pretty general, as it states:

"DEFAULT: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If Seller fails to comply with this contract for any other reason, Seller will be in default and Buyer may (a) enforce specific performance, seek such other
relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract."

[Russell Brazil]

If you are paying cash, then close without clear title. If you are borrowing someone elses money to close, chances are they are not going to close without clear title and title insurance to cover their potential losses.

[Amir Kiani]

Thank you Russell,

I'm financing it.

[Jon C.]

I think you've learned the lesson about why you should always have an attorney. You're making a large purchase and the cost of the attorney representing you is nothing compared to what litigation can cost. 

Respectfully, I completely disagree with what Russell wrote. You should NEVER EVER close without clear title. When you go to sell this property the next Purchaser's title company may ask to see your policy to clear title. Good luck explaining why you don't have one (and when the prior conveyance was out of trusts, they will ask). Further, if they decide the prior conveyance left a gap in coverage and may result in a defect in the chain of title, then they won't insure the next Purchaser either. Even if you were buying for cash and planned to hold, you would not be able to refinance because any Lender would want a Loan policy and a title update and would quickly realize that you don't have clear title. NEVER, NEVER, NEVER close without clear title!

[Marcus Auerbach]

@Amir Kiani your post leaves me with open questions. Where is your agent on this and the seller's? Or is this a FSBO? Where is the seller on this - do they want to sell? Are they trying to find the documents?

Without that info I can only tell you stay patient and work it out. You need a clean title! Forget about a few hundred dollars; what's the value of the opportunity to you?

[Darius Ogloza]

To your direct question, the seller may be liable for your out of pocket losses as a fundamental assumption underlying your contract was that the trust had clear title.  If this proves not to be the case, you may be able to pursue a negligent misrepresentation theory against the seller (a claim typically covered by insurance).  Of course, weighing litigation costs against the damages may lead you to conclude that the game is not worth the candle.  Good luck.   

[Steve Morris]

I'm assuming the issue is if in an LLC title can't get a valid operating agreement. They're right to wait since this would dictate who can sign and where money goes. This may be a big issue since they may not have it. I'd call the escrow officer and ask, maybe they can tell you.

As far as damages, in OR the usual PSA we use limits you to arbitration and then return of down.  Beyond that, you'd probably need some sort of clause on liquidated damages.

However, am not a lawyer, so would defer to them.

[Jim K.]

LOL, I would certainly close without clear title if the title company was stupid enough to sell me a title insurance policy without properly researching the title and figuring out there was an obvious cloud on it. Some of our local closing companies and their staffs really are lazy as the day is long and dumb as a box of rocks, and yeah, it's happened. My personal theory is that it was a local Pittsburgh yokel versus damned-immigrant thing for us. Title company saw all the outlandish Eastern European names involved in the title search and got all flustered, rubber-stamped the title search and sold us a policy. Sucks to be them.

[Jerel Ehlert]

When there's a trust and an LLC title issues will crop up. In Texas, an LLC cannot be the trustee (you weren't clear on how the two were structured), and throwing them both into the transaction means the underwriter will have questions. The notice letter sounds interesting, but doubt it will have any impact in Texas. Title companies are under no obligation to close if they cannot satisfy themselves of all the issues in schedule C.

A better idea is to work with a fee attorney instead of a title company. The attorneys have more leeway as to what they will accept to reach a legal opinion on the state of title.

[Greg H.]

Originally posted by @Jon C.:

I think you've learned the lesson about why you should always have an attorney. You're making a large purchase and the cost of the attorney representing you is nothing compared to what litigation can cost. 

Respectfully, I completely disagree with what Russell wrote. You should NEVER EVER close without clear title. When you go to sell this property the next Purchaser's title company may ask to see your policy to clear title. Good luck explaining why you don't have one (and when the prior conveyance was out of trusts, they will ask). Further, if they decide the prior conveyance left a gap in coverage and may result in a defect in the chain of title, then they won't insure the next Purchaser either. Even if you were buying for cash and planned to hold, you would not be able to refinance because any Lender would want a Loan policy and a title update and would quickly realize that you don't have clear title. NEVER, NEVER, NEVER close without clear title!

What do you think an attorney could do here ?  The reality is nothing at this point.  Since the buyer(OP) is obtaining a loan here, title insurance is a requirement of his lender.  As to NEVER NEVER close without "clear" title,  I would never use the word never.  Over 30+ years, I have done it a few times when my desired outcome dictated.  I have never been asked for a copy of my title insurance policy in over 1000 transactions although a few times when an issue has come up, I have gone back to the original insurer and had them close the subsequent transaction as they were already on the hook

This is an example of the downside of these types of structures.  While the guru's promote the extra levels of protections, they can often be a nightmare when trying to sell a property within the entity(The guru no doubt fails to mention this !)

[Jon C.]

@Greg H. You are also from TX, where the subject property is, and where I have never closed a deal. Perhaps rules are different there. I have closed several hundred commercial and residential deals in the northeast, and I have seen people who have closed without clear title then have serious restrictions as to who will refinance their properties, and ultimately have to accept less than market rate offers when selling because the pool of buyers with the appetite for the chain of title issues is much smaller when they resell.

In the matter of this post, a chain of title defect is a serious defect. Once the Seller gets their money there is no longer an incentive for them to continue the effort to provide the documents required to properly  clear title.

As for your "guru's" comment, I'm not sure who the guru, gurus, or "guru's" you're referring to are, so I cannot address same. Perhaps for the best.

I do agree with what you said (and what I said in my prior response) that there is not much an attorney can do for him at this point unless he wanted to pursue costly litigation. The attorney could have potentially provided him better protections if he had been represented by one in the contract negotiation process.

[Amir Kiani]

Thank you all for your insights,

[Ronald Rohde]

Originally posted by @Amir Kiani:

Thank you all for your insights,

 Did you close?

[Amir Kiani]

@Ronald Rohde: We finally did today! Thanks for your insights