Hi Sean,
I bought what I thought was a 1st due to the fact that it was an option ARM(Which were never 2nd?s) and insured as a 1st however according to recording dates it is in 2ndposition. The reason for the recording error is the loan I bought which was handled through Placer Title did not properly close out the 2nd and no recon or subordination agreement was recorded. They were instructed to pay off and close per the escrow instructions the HSBC 1st and 2nd but instead just paid off the 2nd and did not close it nor was any recon recorded. It was an obvious error on Placers Title part. I thought since it was clearly their error they would issue a title policy and clear this true 2nd with HSBC or Indemnify another title company. But Instead they?ll declined to insuredit and stated the following ?We have declined to insure because of a pending claim on the property, It?s not appropriate for me to comment further on the matter.? I tried to inquire further but got nowhere. It gets a bit more complicated as well. The former owners apparently continued to use the checks on this LOC in question and drew tens of thousands of dollars out. Knowing of course that was fraudulent since they were suppose to close it. I have not confirmed the dollar amount of the balance yet because I have not received a pay off. However the realtor that was trying to handle a short sale for them confirmed that their son got hold of the checks and racked it up near the max of $80K. The good news if any is I bought the property for ~$530K and the property?s value is in the low 700?s. So if indeed I have to pay off this $80K loan with HSBC there?s still room in it to make a few dollars. However I would prefer not to pay for somebody else?s mistake. Referring to Placer, HSBC for allowing the checks to clear and the former owner for knowingly writing checks for a loan that was closed.
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My question is do I have any recourse against Placer, HSBC or the former owners? If I decide to pay off this HSBC loan will I hurt my chances of seeking damages in a lawsuit against Placer. Please let me know your thoughts.
I’ve had to deal with unreconveyed 2nds multiple times. Usually it just involves someone friendly in the escrow company getting documentation showing that the loan was paid off. Sometimes it required contacting the lender. But I’ve never personally faced this issue with the HELOC being used by the borrower again after close of escrow.
Would be interesting to see the payoff instructions from Placer to HSBC on the HELOC. Specifically I’m curious if those instructions are clear as to the loan being paid off and that the line should be closed (which they should be). Note that it is not the title companies responsibility to record the reconveyance.
More interesting is your note that there is a “pending claim”, I’m guessing against Placer Title. Seems the likely claimant would be the foreclosing lender that you bought the property from. If so, then I believe they may have had a duty to disclose they aren’t in first position, or the pending claim.
Bottom line, I think your options are: 1) live with it, 2) push HSBC to reconvey (will be easier if you have a copy of escrow instructions that clearly say line was to be closed), 3) push Placer to issue title insurance (I’d at least talk to a chief title officer - rather than anyone on the escrow side), 4) push the foreclosing lender / trustee to overturn the sale for lack of disclosure (assuming they knew and are trying to have their cake and eat it too, by both selling the loan, and collecting on a title policy, which I think they might be).
Hope that helps,
Sean
sburett … From your original post you noted “the realtor that was trying to handle a short sale for them confirmed that their son got hold of the checks and racked it up near the max of $80K.” … Evidently multiple parties (likely all lenders involved in the short sale negotiations) were aware/informed of the non-reconvyed HELOC (technically/legally in 1st position) that should have been (but was never) closed out.?
I have run into a few scenarios similar to yours … where old HELOCs, that should have been closed out (yet were missed) by a lender & title company handling a refi or sale. In one case, the property was sold and some six months after the close of escrow, the new homeowners had a notice of default (NOD) posted on their front door. Imagine the shock. The new owners had 30% down and never missed a mortgage payment and yet a NOD was taped to their door! ?The new owners quickly brought the issue to their realtor’s attention and soon thereafter the title company (which failed to perform their duties) ‘made good’ by paying off the outstanding balance on the HELOC (which was ‘drawn down’ well past the sale date by prior owners) and promptly closed the LOC. The title company might well opt to sue the prior homeowners for fraud … but the amount drawn down ($40K) was likely less than court costs, so they may have simply written off their title error.
Hope you are able to get some resolution. Please post again re outcome of any negotiations w the title company