I have been buying houses at trustee sale for some time. In our title search, I always start with finding the grant deed for the most recent purchase. If the grant deed shows transfer fees being paid, and is requested by a title company, I generally feel that we are safe from liens prior to this sale date. However, I do worry if the previous owner has the same name, or is clearly related to the owner being foreclosed upon. Also, I feel I need to go back to the being of a groups involvement if there is a partial sale (half interest and the like), even if the grant deed was requested by a title company. Any comments on my reasoning??
This is a great question. You absolutely want to make sure the transfer was a full value transfer and check for similar names. There is one other huge reason why you would want to look beyond the transfer.
We recently had an investor call us to tell a story about an unreconveyed HELOC. There was a sale handled by a title company. Lets say the Smiths sold the property to the Jones’. The Smiths had a first mortgage and a home equity line of credit (HELOC) that should have been paid off when the property was sold. The Jones then defaulted on their purchase money loan. This investor assumed that the 2 Smith loans were paid off when the Jones’ purchased the property so he did not check for reconveyances. The investor then purchased the property at trustee sale thinking he was buying a purchase money first. When he went to flip the property he found out that the reconveyance on the HELOC from the Smiths had NOT been filed and the account had not been closed. The Smiths had continued to charge on the account and there was a $150,000 balance on that loan. Since the sale from the Smiths to the Jones’ was a full value transfer and the loan was from an institutional lender there was undoubtedly a lenders title policy in place that would have protected the lenders position had the property sold to the bank at trustee sale. Since a 3rd party investor purchased the property he did not have the benefit of that title policy. The Smiths HELOC (which showed as senior to the Jones’ loan) had gone into collection and when the investor contacted the collection agency they were reluctant to give him any information since they probably saw a potential pay day. We suggested he contact the title company that handled the sale since they had the paperwork showing that the loan was to be paid off and closed in that sale escrow. Unfortunately the title company that handled the sale had gone out of business. To date the investor is still trying to resolve this issue.
In this business it is better to be safe than sorry and never assume that if there has been a transfer that all prior liens have been cleared. Mistakes happen.
I have a similar case like this. Do you know what the investor ended up doing?
The last time we chatted with him he was trying to work with the title company that was the underwriter for the defunct company to see if they would help him. He had also contacted the previous owner (in our example the Smiths) to see if they would help him negotiate with Chase since the credit account was in their name and they Chase talk to him without authorization. We have not heard how things turned out but we did ask him to keep us posted on the outcome. If we do hear from him we will post that in this forum or you can always email us at firstname.lastname@example.org.