Best way to resolve problem caused by title company

[Po Chan]

We are selling a REO house we bought 5 months ago. As we going through the closing process, the title company found out that there was a loan that was taken out by previous owner that was never paid off. The loan was opened with San Bernardino County CA through a program called SANBAG HERO program, more information can be found here:
https://9662473e561b2ca15fec-e...

The payment of the loan was paid biannually together with the property tax.  Apparently previous escrow company that handled the transaction when I bought the house 5 months ago missed this loan.  I was told that in order for us to sell the house, we will need to resolve this loan first and the best way to proceed to close on time(Oct 9) is to paid off the loan with the sales proceeds and then ask for previous escrow company for reimbursement or file a claim with the title insurance company.

Is title company making such mistake a common occurrence?  Also, what would be the best way to pursuit previous escrow company or title insurance company for reimbursement?  Should I hire a lawyer to handle this?

[Clint Votruba]

You ask:  "Is title company making such mistake a common occurrence?"  If the "loan" was of record which the title company should have found with a basic search of the title and tax records, then no, it is not a common occurrence.

You stated: "I was told that in order for us to sell the house, we will need to resolve this loan first and the best way to proceed to close on time(Oct 9) is to paid off the loan with the sales proceeds and then ask for previous escrow company for reimbursement or file a claim with the title insurance company."

Will whoever told you this indemnify you against loss, including the cost of litigation etc, should the previous title company refuse to reimburse you?  If not, then it's pretty bad advice.

Obviously, your present title company does not want to / will not contact the previous title company about this issue and therefore, you should do it.

You don't tell us the amount of the payoff but assuming it's large enough where you don't want to take a "hit", then you should deal with this issue before the sale and not payoff a loan that is covered by an Owner's title insurance policy.

The sooner you file a claim with the previous title company then the sooner you will have this issue resolved and cleared in order to be able to sell the property without your paying this loan.

You should personally be involved in contacting the prior title company and in that way, you will obtain actual knowledge of how your claim is being processed etc.

Finally, verbal contact with the prior title company is ok as long as you begin and continue to communicate with the previous title company IN WRITING after you have filed a written claim.

As to an attorney, if the attorney can help you expedite the process with the previous title company, it may be worth it to hire one in this situation.

Good luck.