Help with Title Problem!!

11 Replies

Hello BP community!

I'd like some advise with the following Title problem:  Three years ago I foreclosed in a tax lien and became the owner of the property.  I sold it with seller financing and insured the Title with no problem.  As a matter of fact I got a second note on the property and no problems with the Title were found.  Fast-forward, two years later at the time the borrower wanted to refinance and the same insurance company that had previously insured the Title claimed that the Title is "clouded", so the new owner (my borrower) can't refinance and pay me back.

I spoke to the lawyer who did the foreclosure and he assured me that the Title has not problem and the reason it was rejected by a second insurance company was because once one company rejects a Title, no one wants to touch it. He said that I would win in Court if I take my borrower to foreclosure.

In order to "cure" the Title a new foreclosure must be done.  This is my dilemma:  This property is not longer mine, but the owner wants me to pay for the new foreclosure, even thought that the he is the one bringing the petition and the judgement will be on his name.  These are the options I see on the table:

1.-  I could do nothing, wait for the note to mature, foreclose in my borrower and "cure" the Title after the property is mine

2.- I could split the cost and pay for 50% of the cost of "curing" it or 

3.- Offer to pay 100% of the cost to allow him to close, with the condition that he pays me back at closing.

Please, I love to hear your input about the right thing to do and don't want to be taken advantage.  I want to be fair to him.  Thank you in advance! 

What about doing a Quiet Title?

You could also tell the title insurance company you want to file a claim since your now being told there is a cloud on the title.

What exactly is the issue with the title now? Some things can be corrected with out a full blown foreclose or Quiet Title.

In my state I get a tax deed in the mail if the property is not redeemed. If I want to remove any clouds on title I get Quit Claim deeds from previous owners and mortgage release if there was a mortgage. Cost me a couple hundred bucks as I pay people for their time to sign paperwork for me. They are generally happy to get $100 to sign anything I need on a property they know they no longer own. Then I can get title insurance and sell with a general warranty deed.

Your facts are a little thin so let me ask a few questions.

When you purchased the property via the tax deed I assume you didn't get a title policy, is that correct?  You wrote that when you sold the property and took back a mtg you had no problem in obtaining title insurance so I assume you got a lender's title policy.  Is that correct?  If so have you submitted a claim to the title insurer?

Did you convey title via a Warranty Deed, Special Warranty Deed or Quit Claim Deed.  The type of deed is important for what liability you may have to the Grantee to cure the alleged defect.

You also wrote you rcvd a 2nd Note, so is there a 1st mtg?  I assume the current owner is trying to a new mtg for more than what is owed on the current mtgs.  For that reason the current insurer may not be willing to increase its liability.

In my experience just because one underwriter is not willing to insure doesn't mean all the others won't, that's what underwriting is about.  However, if there is in fact a defect then other underwriters will also decline to insure.  Do you know exactly why the underwriter is declining to insure?  Has a title commitment been issued to show under what conditions the insurer will authorize the issuance of the policy?

If you hired the attorney to do the foreclosure I'd expect him to be discussing the matter with the underwriter to clear up the issue.

@Vania Castillo The obvious answer is your buyer should go to his title insurance company and get them to deal with it. Presuming he got title insurance when he bought it from you, it is his title insurance company's problem.

Your comments don't make sense. We need clarification.

First you need to find out exactly what the cloud is. Sometimes the title company saying there is a cloud,is simply making a mistake reading the title. Sometimes that last title company made a mistake that is easily curable.

Second your attorney said:  "the reason it was rejected by a second insurance company was because once one company rejects a Title, no one wants to touch it."  you didn't mention that it had been rejected by another title company before. What is your attorney talking about?

Next your attorney is wrong. We have often gone title company shopping to get a title company who will insure our deal.

You talk about another foreclosure. Are you talking about a new foreclosure on your tax lien. That may help if the "Cloud" is something they think is wrong with the tax foreclosure. But if it is something since then it won't help. You  may not be able to reopen or do a new tax foreclosure.

Please tag me in any response because I am curios what it going on. 



Thank you so much guys for our input!

@John Underwood I'm going to file a claim with the Title's Insurance, since borrower is not going to do it.

@Peter Walther In effect, when I purchased the property via tax deed, I did not get a policy.

I and my borrower paid for Title's insurance.  I convayed Title via QuitClaim Deed. I hold both mortgages and my borrower is trying to refinance for a higher price after forcing appreciation by building another unit to make it a triplex.

@Ned Carey I see the obvious answer, but unfortunately, my borrower is not doing anything, but "waiting for me to fix the problem".  I even told him that since we bought the Title's Insurance from the same company, we could file a claim together and he gave me a cold shoulder.  As I mentioned, If I foreclosed on him after my notes mature again ( I gave him 2 extensions already) and take ownership of the property back...I will find a way to fix the problem. 

First of all let me find out what the cloud is all about.  My borrower is not going to do anything.  Should I write him letter and give him a fair warning telling him that is his responsibility to deal with the matter, and his refusal could lead to a foreclosure if he does not pay me back when the notes mature?

Originally posted by @Vania Castillo :

Thank you so much guys for our input!

@John Underwood I'm going to file a claim with the Title's Insurance, since borrower is not going to do it.

@Peter Walther In effect, when I purchased the property via tax deed, I did not get a policy.

I and my borrower paid for Title's insurance.  I convayed Title via QuitClaim Deed. I hold both mortgages and my borrower is trying to refinance for a higher price after forcing appreciation by building another unit to make it a triplex.

@Ned Carey I see the obvious answer, but unfortunately, my borrower is not doing anything, but "waiting for me to fix the problem".  I even told him that since we bought the Title's Insurance from the same company, we could file a claim together and he gave me a cold shoulder.  As I mentioned, If I foreclosed on him after my notes mature again ( I gave him 2 extensions already) and take ownership of the property back...I will find a way to fix the problem. 

First of all let me find out what the cloud is all about.  My borrower is not going to do anything.  Should I write him letter and give him a fair warning telling him that is his responsibility to deal with the matter, and his refusal could lead to a foreclosure if he does not pay me back when the notes mature?

Your answer is still a little confusing because you wrote you and the borrower both paid for title insurance.  Did the buyer get an owner's policy and you received a lender's policy?  In any case you don't file a claim together.  You file your claim and the buyer files his claim.  The insurer's obligations to each of you may be different and the potential loss recoverable under the policies are definitely different.  Was a commitment issued for the buyer's refi, if so does it have a requirement for the removal of the defect?  If so what is the defect?

@Vania Castillo it sounds like you are starting to get a handle on the situation. With the additional details from you last post it seems that the problem is clearly his. If he won't make an effort than he will suffer the consequences. I think your proposed letter is the right solution.

Now unless the "cloud" is something that is clearly your doing, I don't think this guy deserves any more effort or consideration. The reason he has title insurance is for exactly these types of situations. If he won't make any effort, to bad for him. 

As @Peter Walther says above, you have separate title policies and you cannot make a claim on his policy without his cooperation. I assume you are not a lawyer, so you probably shouldn't help him prepare any documents as that could be construed as practicing law without a license. That is a valid excuse for not helping him.

PS: You said you conveyed via a quit claim deed. A quit claim deed says basically Buyer beware! I am giving you all rights I have in the property but I am not promising that I actually have any rights.

PPS: Was this a transaction for business; (a flip or a rental), or was this for him to live in. That could change the dynamics of the situations a little bit. 

Tell your buyer to file a claim under the owners title insurance policy. Let the insurer's claims counsel figure out the remedy.

I don't see that lenders coverage was issued and regardless, it sounds like the tax sale purchaser/lender created or assumed the problem.

To me it sounds like this may involve a defect in the original tax sale foreclosure... such as a lack of notice to all interested parties.

Thank you sooooo much guys for all your support!!

It was really helpful to bounce ideas with you all since it seemed that the situation was stalled due to his lack of cooperation.

As @Ned Carey said, I'm starting to get a handle on the situation.  Today, I learned my lender (owner of the property) is going to finally take charge of the situation and file a petition to quiet the Title and got the Title commitment showing the defect. As @Tom Gimer said it involved a defect in the original tax sale foreclosure "Interested parties were not named in the Collector's deed recorded in the Books, though named in the Collector's deed and one as one person was named incorrectly".

Indeed, msy hand were tied without his cooperation.  I did not know the specifics of the defect and could not supply the documentation to support my claim to the Title insurance.  

He claimed, he could not write the letter or do anything, because he does not speak English (excuse!).  That's the reason I wanted to help filing his claim, but he did not take my offer.  Anyway, I filed my claim when I realized we would not do anything, but had difficulty getting documentation from him to support it.  

The transaction was for business purposes. He lended the money under his LLC with the intention of adding value to the property, refinance the property to pay back the loans and then flip it later on ( it became a 2 year flip!)

Thank you again to all of you for your advise and support!

I'm hoping for smooth sealing now on....

Wow this thread completely confused me as to who is actually the lender and who is the borrower and owner, above you note "Today, I learned my lender (owner of the property)"  - typically the lender does not own the property the borrower does... and then "The transaction was for business purposes. He lended the money under hisLLC with the intention of adding value to the property, refinance the property to pay back the loans and then flip it later on ( it became a 2 year flip!)"

Did he lend money to himself to do the flip and try and refinnace it out?



@Chris Seveney When I read that statement I also wondered if someone was creating a note without any true consideration? We've seen some notes where they created paper just in hopes of selling it that we've declined. We want to see that the note was an arms-length transaction and created either out of the sale of the property or the lending of money.

@Chris Seveney Sorry I confused you so much! I was very stressed out about this situation, but hope things are getting back on track.  I did not get any news today.  

I'm the lender and have problems with my borrower and owner of the property that I sold to him with owner financing holding two notes.