Closing on houses Monday, but losing one to past judgement/liens

28 Replies

I am closing on a package of SF homes on 8/24. The title company calls me today and says that one of the properties is not able to be sold to me because the seller acquired the property through a quitclaim deed, which means they acquired the liens and judgments along with the property. A previous owner did not pay property taxes, and this is not showing up because I will be the first to get title insurance on this.

As a result, I am not able to purchase this house. This is after I paid for the appraisals, and after months of waiting on the lender, appraisers, and title company to complete everything. I am very upset that this is only showing up last minute. Who's responsibility is this? Can't the realtor who sold me this property have done their due diligence to make sure they own this free and clear? Or the title company to tell me sooner than four days before closing? I could have easily chosen a different property months ago to meet my goals. Now I feel like I am being screwed out of a house. Is there anything I can do?

Anyone?

No one, really. Unless someone fraudulently knew, that is what the title search process is for. You actually lucked out in not taking possession of the property and the liens. Yes, that happens sometimes in RE. 

What are your costs related to the property that fell through?  How much commission is your broker getting on the total deal?  They might be able to offset some of those costs with a reduction in their commission.

I think your best approach would not to blame and feel like you expect a full refund, but to present it as a problem(this money I am putting in to the deal that isn't getting me anything in return) and ask if your agent can address it by talking to his broker.

You should also offer to tack whatever amount they offer onto the standard commission if they are able to get you the house.

Originally posted by @Jesse T. :

What are your costs related to the property that fell through?  How much commission is your broker getting on the total deal?  They might be able to offset some of those costs with a reduction in their commission.

I think your best approach would not to blame and feel like you expect a full refund, but to present it as a problem(this money I am putting in to the deal that isn't getting me anything in return) and ask if your agent can address it by talking to his broker.

You should also offer to tack whatever amount they offer onto the standard commission if they are able to get you the house.

 Only appraisals costs at this point. I am not sure how much my broker is getting and that is a great suggestion. I will try to negotiate some of that money back. Thank you!

Originally posted by @Jerry Poon :
Originally posted by @Jesse T.:

What are your costs related to the property that fell through?  How much commission is your broker getting on the total deal?  They might be able to offset some of those costs with a reduction in their commission.

I think your best approach would not to blame and feel like you expect a full refund, but to present it as a problem(this money I am putting in to the deal that isn't getting me anything in return) and ask if your agent can address it by talking to his broker.

You should also offer to tack whatever amount they offer onto the standard commission if they are able to get you the house.

 Only appraisals costs at this point. I am not sure how much my broker is getting and that is a great suggestion. I will try to negotiate some of that money back. Thank you!

I think this situation will give you an interesting test of the agent/broker.  It shouldn't be enough to make/break the deal for any one involved.  If you get the impression they feel entitled to the full commission on the houses you will be buying AND they aren't inclined to help you close on the property with issues - you probably want to take your business elsewhere in the future.  

Originally posted by @Jesse T. :
Originally posted by @Jerry Poon:
Originally posted by @Jesse T.:

What are your costs related to the property that fell through?  How much commission is your broker getting on the total deal?  They might be able to offset some of those costs with a reduction in their commission.

I think your best approach would not to blame and feel like you expect a full refund, but to present it as a problem(this money I am putting in to the deal that isn't getting me anything in return) and ask if your agent can address it by talking to his broker.

You should also offer to tack whatever amount they offer onto the standard commission if they are able to get you the house.

 Only appraisals costs at this point. I am not sure how much my broker is getting and that is a great suggestion. I will try to negotiate some of that money back. Thank you!

I think this situation will give you an interesting test of the agent/broker.  It shouldn't be enough to make/break the deal for any one involved.  If you get the impression they feel entitled to the full commission on the houses you will be buying AND they aren't inclined to help you close on the property with issues - you probably want to take your business elsewhere in the future.  

 Agreed 100%

How much are the back taxes and liens?  They can sell it - unless as JD referenced, the quit claim deed was fraudulent and the seller has no authority to sell the property at all.  The problem is that your lender won't be in first position if they extend a loan to you.  If the deal is worth it, you can payoff the back taxes and possibly negotiate the liens down - just depends on your margins, but the bottom lien is that the taxed will have to be paid and the liens will have to be cancelled before the lender will extend credit on that particular property.  

You can definitely still purchase the property, its just a matter of should you now.  If your broker makes concessions, throw that money into the payoffs and maybe the entire package is still worth it.  As a general rule for myself and any of my clients, I will always run at least a limited title prior to even making the offer.  

Even though I generally take a quick look at title, simply because that's my nature and I deal with short sales, problem off market properties.....it is not to be expected for an agent to do title searches on properties you make offers on.  You can choose to pay for title search, before you do the appraisal, or vice versa, it's up to you.  This is how the process works, and i's just a risk that goes along with buying properties. stop looking for someone to blame, and make you whole.  Do you pay a commission to your agent when you Cancel a contract after inspections?

Originally posted by @Jerry Poon :

I am closing on a package of SF homes on 8/24. The title company calls me today and says that one of the properties is not able to be sold to me because the seller acquired the property through a quitclaim deed, which means they acquired the liens and judgments along with the property. A previous owner did not pay property taxes, and this is not showing up because I will be the first to get title insurance on this.

As a result, I am not able to purchase this house. This is after I paid for the appraisals, and after months of waiting on the lender, appraisers, and title company to complete everything. I am very upset that this is only showing up last minute. Who's responsibility is this? Can't the realtor who sold me this property have done their due diligence to make sure they own this free and clear? Or the title company to tell me sooner than four days before closing? I could have easily chosen a different property months ago to meet my goals. Now I feel like I am being screwed out of a house. Is there anything I can do?

Simple I don't understand what a quit claim has to do with this. Barring things I don't know. Get the seller to pay the property taxes out of the proceeds. You can split it with him I guess. He wants to sell maybe waiting for appreciation and doesn't have enough room that may be the case also. The attorney just shows the taxes, liens, judgement's being paid on the HUD fax it to the title company and it has to close like that. Other than that I don't know. The deal doesn't have to be renegotiated. He just has to pony up what due and its not your responsibility.

@Todd McLochlin

I am not sure how much they owe, but I was told that this was from many years ago, probably more than a decade. The title company said that the seller acquired these properties, along with the liens and judgments through the quitclaim, and because I am the first in the chain of many sellers to buy this how to require title insurance, this issue is surfacing for me. But that is a good suggestion. I'll see if I can go and pay the back taxes to try to clear it up. It is quite a good house so I really want it. I like that policy of yours. It could have prevented this whole mess for me. How much are your limited title costs?

@Wayne Brooks

Good points all around. It's not worth the aggravation for me to track down a culprit anymore. For the next time around, can you tell me how to order a quick title to glance through? What should I look for to prevent things like this happening again?

@George Allen

The thing is, no one is taking responsibility because the taxes that were due were due many many years ago. The seller is also saying that he is in a long chain of previous sellers. I really don't understand how this property could have changed so many hands without this problem arising. But he seemed convicted that this was the case, so I really don't know who to believe anymore. This problem seemed to have gone past the lender, initial title people, and gotten all the way to just a few days before closing. At this point, I understand as much as you do.

Finding taxes and other liens that were not previously resolved is not really a problem, as long as the seller has the equity to cover them.  As others have said, they simply get deducted from the seller's proceeds.  Sounds like the previous sales were cash sales, with no title searches/insurance....not a wise move.

George,

I’m assuming here, but it sounds like the property was conveyed by quit claim deeds for several years in the back chain – normally that means no attorney/title company, title search, agents, or anything else was done that would have normally been completed at a standard transfer of title by warranty deed - quit claim deeds do not warrant the state of title by the seller and offer no assurances for the new owner. No title policies were purchased, no lien searches completed, basically just a kitchen table closing between friends/family members. Taxes are taxes, they will have to be paid, I agree with you that the seller needs to pay them. I suspect the real issue is that there are judgments against the prior owners in the chain of title that attach to the property and neither seller or buyer wants to payoff someone else’s bad decisions for them.

Jerry,

I have an extensive title background, I do it for free as part of my overall service package – unfortunately, I have no idea what the going rate in California would be for a limited search, but if you’re ever in the market for a Georgia property I’ll get that title completed before making the offer!   

@Todd McLochlin

That sounds about right. I think the previous owners all paid cash to the seller. I'm probably the first one going through with a loan.

Would you be open to looking up California titles or other state titles for a fee?

Originally posted by @Wayne Brooks :

Finding taxes and other liens that were not previously resolved is not really a problem, as long as the seller has the equity to cover them.  As others have said, they simply get deducted from the seller's proceeds.  Sounds like the previous sales were cash sales, with no title searches/insurance....not a wise move.

 Exactly. I think it is crazy doing deals without title search/insurance; no way do I go on someone's word that it is a clean deal. I just paid ~$150 each for title insurance on two cash deals and it was $300 well spent. 

Originally posted by @Jerry Poon :

That sounds about right. I think the previous owners all paid cash to the seller. I'm probably the first one going through with a loan.

Would you be open to looking up California titles or other state titles for a fee?

 As much as I hate to turn down business, I'd be doing you a disservice if I said yes.  I'm not familiar with the title standards in California, nor do I know how to access any of their records online.  I'll do some research over the weekend and if it looks like I can actually help out I'll reach out to you - right now I think I'd be doing you more harm than good!  

Originally posted by @Todd McLochlin :
Originally posted by @Jerry Poon:

That sounds about right. I think the previous owners all paid cash to the seller. I'm probably the first one going through with a loan.

Would you be open to looking up California titles or other state titles for a fee?

 As much as I hate to turn down business, I'd be doing you a disservice if I said yes.  I'm not familiar with the title standards in California, nor do I know how to access any of their records online.  I'll do some research over the weekend and if it looks like I can actually help out I'll reach out to you - right now I think I'd be doing you more harm than good!  

 I appreciate the honesty. Do you have investment properties in Georgia?

I've got two rental properties and a couple properties that are still in the redemption period from tax deed purchases - those could turn into anything!

I have a rental in Alpharetta, Ga. The same house in So. Ca. would worth 3x more.

I'm having trouble understanding the issue.  Past due property taxes do not prevent a sale. A previous quit claim does not prevent a sale (although title will want signed affidavits from the grantor if the transfer was uninsured).  A property that has past due property taxes from many years ago in CA would have been sold at tax sale already.  I'm wondering if the property tax liens are unsecured?  That happens when a property transfers with a low assessed value and then transfers again at market or higher value within a short period of time.  I get lots of such supplemental property tax bills.  The transfers are assess-able events in CA but if the property transfers 2 or more times in a short period of time, the tax assessor has no ownership to whom to attach the assessment.  Hence an unsecured property tax lien.

Regardless, it doesn't prevent a sale, just reduces the seller's proceeds. It doesn't sound like you understand what is preventing the sale of this property.  Is there another owner involved on that specific property?

Originally posted by K.marie P.:

I'm having trouble understanding the issue.  Past due property taxes do not prevent a sale. A previous quit claim does not prevent a sale (although title will want signed affidavits from the grantor if the transfer was uninsured).  A property that has past due property taxes from many years ago in CA would have been sold at tax sale already.  I'm wondering if the property tax liens are unsecured?  That happens when a property transfers with a low assessed value and then transfers again at market or higher value within a short period of time.  I get lots of such supplemental property tax bills.  The transfers are assess-able events in CA but if the property transfers 2 or more times in a short period of time, the tax assessor has no ownership to whom to attach the assessment.  Hence an unsecured property tax lien.

Regardless, it doesn't prevent a sale, just reduces the seller's proceeds. It doesn't sound like you understand what is preventing the sale of this property.  Is there another owner involved on that specific property?

 Oh crap. I forgot to mention that this was in Indiana, not California. So the issue is that I think the lender is requiring title insurance on the property. In order for that to happen, the title must be clear of all previous liens and judgments. The seller acquired these properties along with their previous liens and judgments, which happens to be backtaxes. I am guessing that the previous owners all paid cash in their exchanges without getting title insurance or any of that formal stuff, thus ignoring the requirement for cleaning the title. In this case, it is preventing the sale because of my lender's requirements. And no, I am not completely understanding this situation, which is why I am posting on here to try and find more answers. That summary right there is what I know so far, pieced together from what my lender, title company, realtor, and seller have told me.

As for possible solutions, they are suggesting me to get something called "quiet title", which, unfortunately, can take a while in this area to complete. Another solution is to drop it all together, but it is a good property, so I don't want to do that without exhausting all my options.

I would drop it.  Close on the other properties on time. Quiet title is not a beginner's game. There's too much you don't/can't know about the condition of title and debt/lien issues.  Quiet title is a the final step when you understand the problem.  Not a situation where you buy and then hope QTA fixes the problem.  

Any due diligence money spent on this particular property is the cost of doing business.  Neither the agent or seller owes you for due diligence money for a title flaw found before closing.  If you want to play hardball you can ask the seller to cover the cost as part of the terms of closing on the other properties on Monday.  If it's a great deal I wouldn't play such a game.  

Why beat up the agent?

Agent makes tips under the best of cases. You are the investor and should act like one, not trying to grind the agent out other commissions. 

Cheap behavior does not attract money and only repels people. Due diligence and risk are yours alone. Cheapskates have no place in my world. 

Don't buy a dirty title.  I am a real estate agent.  I work with investors.  Please work with agents that insist on clean titles.

Live and learn. In the future, insist on a preliminary title search paid by the seller if deemed unacceptable to you the buyer. Not the agents fault. Title searches are performed just before closing to protect the buyer and lender.