1st is Foreclosing, but there is also a HELOC


#1

I was about to bid on a CA property in which the 1st was foreclosing. The 1st was recorded on 9/2005 in the amount of $500k. When I contacted my title company they told me there was an open $80k HELOC made 1 year prior to this 1st foreclosing loan and that the title person did not see a reconveyance on that $80k HELOC. On FR, I see no HELOC on this property. He was not able to tell if all, some, or none of that HELOC was used. The NOT recorded on 5/13/2008 shows an amount of $534,478. Then another NOT recorded on 6/21/2010 shows an amount of $650,897. Is it possible that $80k heloc was clumped into the NOT amount since $534,478(as of 5/08) is substantially smaller than the NOT amount of $650,897(as of 6/21/2010).

I did not inquire with the title company if the heloc was the same as the 1st TD recorded in 2005. I’m a little bit confused as to what’s going on here. I noticed that the property reverted back to the bene today but if the 1st did in fact drop the bid low enough and I ended up buying the property, would I have been stuck with this HELOC?


#2

Hi Jack,
It is doubtful that the unreconveyed HELOC was lumped into the amount of the foreclosing loan. This issue is not unique and I personally talked to an investor that purchased a property with an unreconveyed HELOC from the PREVIOUS owner (yes, the one who sold the property to the current owner).
In the fast paced world of refi’s that took place a few years ago there were mistakes made. Even though the instructions to the lender were to pay off, close the account and reconvey it didn’t happen and the borrower continued to use the credit line and ran the balance back up.
In the case of the lender they have a lenders title policy that insures their lien position. So if something like this happened they have a title claim. If an investor purchases this property at trustee sale you do not have the benefit of that title policy and now must either pay this lien or try to fight to get information from the title company to prove that the instructions were to close and reconvey the loan and the lender made this error.
Since there is no reconveyance you could have tried to contact the lender to see if there was a balance due on he HELOC. They will usually not give balance information but you could at least try to see if the loan was still active. This may take some real tenacity but you may be able to work your way up the chain of command. If you can see which title company handled the escrow on the new loan you may try to reach out to them as well to see if they can push the lender to reconvey the HELOC. None of these options are necessarily easy but if you are really interested in buying this property at trustee sale $80k is a lot to lose.


#3

Thanks Michelle.

What you described is the perfect explanation. I agree, in the end this is a lot to lose. Had this owner been a close family member or someone I trust, maybe things would be different had I known the exact situation of that HELOC but never in a case like this.

Thanks again for your help. BTW, your Title Research web seminar you hosted yesterday was very helpful, thank you for going over the information!

Jack