Clear title

[IOBA]

I was listening to NPR today.   The guest was talking about the mortgage/foreclosure crises.

The guest stated that some title companies are NOT guaranteeing free and clear title in some states.  (This could create a problem down the road if Bank A says wait, I own that house and Bank B was not legally allowed to foreclose on it and  then sell it.)

Florida was mentioned as one of the states.

Please note, she said it was SOME title companies in SOME states.

Just beware if you are purchasing a home...  

[happy0510]

Can you elaborate? I'm buying a house that has never been foreclosed on? Isn't this free and clear title?

[IOBA]

It use to be that you paid a title company to research and to guarantee that the title to the property would be given to you free and clear.  (At closing they pay off any liens against the property.)

The title company would also charge you for title insurance.  The insurance was in case they missed something or someone later down the road came back and claimed that they really owned the property but due to fraud or something else, it was sold out from beneath them.  The title insurance would pay the other person off.   

So either way, you were protected and it was your property.

With all of the foreclosures and problems, some title companies in some states are now refusing to guarantee clear titles.    I doubt that they are offering title insurance.

***

These are the basics of how it works, but may vary from area to area.

Bank A finances the house.   Then they bundle it and sell it to Bank B electronically.  Bank B wires the money for the bundle to Bank A.   Bank A sends over the hard docs to Bank B and Bank B is responsible for filing the new title with the county within 30 days to show proof of new ownership.

Bank B (in theory) is suppose to process the hard docs, file the new title.    They scan the docs into the computer and send the papers to cold storage.

When Bank A sells the bundle to Bank B, they generate a letter to you and tell you your mortgage has been sold.

When Bank B buys the bundle, they generate a letter to you and tell you to pay them.

With humans, computers, and papers, things can be overlooked, mishandled, corrupt, or lost.   

****

Say you don't pay and Bank B decides to foreclose on you.   They do the paperwork, but can't find the title.  They fill out an affidavit saying they are doing "Lost Title", it gets notarized, and submitted to the court with the foreclosure file.   (At this point, they can't prove they own the property, but tell the judge they do.)  Judge signs off on the foreclosure, Bank B takes your property.

The following year, Bank A gets audited and finds the papers for your property.  Well you are long  gone, Bank B sold it to someone else.  Bank A says, wait, we own this property and no one has been paying us.  They go knock on the door and say, "Hey, we own this house.  Pay us or get out."   The new owner says, "uh, no, I bought this house from Bank B last year.  See?  I got papers.  I pay them, not you, bug off."

Bank A can foreclose and show that they own the property.  New home owner is screwed no matter how you look at it.

IF there is title insurance, the title insurance should pay off Bank A.  If there is no insurance and the title company did not guarantee free and clear title, home owner is really screwed.

*****

That is just one scenario.

My suggestion -- regardless of the type of purchase/property -- ask the title company if they are 

1) guaranteeing free and clear title to the property?

2) are they including title insurance?

****

On the radio, the person said it rarely happens, but it can.   And she said about 96% of the foreclosures are legit, even if the paperwork was done wrong.   It's the other 4% that can cause nightmares.   

**** 

Hope this helps and not scare you!

Good luck on your house!

[Anonymous]

The ones that are acutally the riskiest are ones where an ex owner can show that they were foreclosed on illegally.  In these cases the owner is more likely to attempt to sue to regain the property due to the illegal / improper foreclosure.  For the most part, issues between selling bans can be resolves between the two banks.  None of the banks want the time and expense of sniping each other back and forth, and there is sitll a paper trail showin that bank B did in fact buy the bundele containing the property from bank A.  So even in the 4% of questionable foreclosures, 90+% of those are still going to fully hold up in court or by fixed by the banks internally and you may never even now something was up.  The problematic ones are when the ex owner finds out that they were not handled properly and hires a lawyer.   That is why they are maing it harder to get title insurance because people are moving back into old homes that were foreclosed on, sueing foreclosing banks, and demanding compensation from title companies for homes that were sold via an improper foreclosure.  Those are the cases that are the most "damaging" to the title companies ad the bank transfers have a paper trail to follow and none of the banks want to really fight at each other or start a little "paper war" going after each other.  But peopl with nothing to loose and lawyers willing to work on % of any settlement do not have those qualms even when they know they should have been foreclosed upon but the paperwor was just done wrong...That said, there are many cases of people being foreclosed on improperly by either a second bank or by a faulty foreclosure process at their bank.  It is a slippery raod out there right now.

I would not buy any property with any major title issues (minor ones that are paid off are not so much a big deal), nor would I buy any property without title insurance period. 

[BBYGRL]

Great topic!

[DallasLoanGuy]

if this is a concern.... read the title commitment. or have your OWN attorney review.

if the is an exception, it will be in writing.