San Diego

[DrBob601]

Hi Paul-

Thanks (again) to you (+ nanomug, +elbarco) for your opinions.

We received the prelim title search yesterday and I've been reviewing it this morning. Lots of legalese, so it'll probably take me some time to understand what exactly I'm reading. As far as I can tell, there are two outstanding loans ("Deed of trust to secure an indebtedness" is how it's described) identified in the prelim (total amt approx. $1.4 million; both dated 2006) as well as a "notice of Federal Tax Lien" of about $63K and about $800 in late penalties for "Special County Taxes." The largest loan ($1.2 million, recorded May 2006) lists a Calif escrow company as initial "Trustee" and MERS as a "Beneficiary" ("MERS is a separate corporation that is acting as a nominee for Metropolitan Home Mortgage, Inc”). Subsequently, an NOD was recorded in Mar 2008; a notice of Trustee's sale recorded in June 2008 - as well as  "The beneficial interest of MERS, Inc. under said deed of trust was assigned by assignment" (how's that for legalese?) -  to Bank of NY; finally, a "substitution of trustee under said deed of trust" naming Reconstuct Company, N.A. as substituted Trustee; and two trustee's sales (June 2010 and July 2011) for this particular loan.

The second loan (HELOC) from July 2006 also lists MERS as a "beneficiary," but there aren't any other qualifications specified with respect to this particular loan.

So I'm assuming that "Reconstruct Company" is the "Investor" group that our agent told us we're negotiataing with. In any event, we've offered them their asking price, and supposedly they're prepared to accept...but we're still waiting for written acceptance. We haven't actually provided any monies yet (since we don't have a signed acceptance yet), but we do have inspections scheduled for after Thanksgiving, so we'll be committing our first monies at that time.

Anyways, it looks like I'll have to contact the title search company on Monday to get some clarifications of what we're dealing with. At this point, I'd have to agree with you (and others here) with respect to purchasing an owner's title insurance policy...and depending on how comfortable we feel after speaking with the title company rep, we may or may not want to consult with an attorney as well. If a title insurance policy would indeed provide sufficient protection of our investment, we'll just have to bite the bullet and do that. I hate to have to pay extra costs on this (since we're already exceeding our original budget), but if that's what it takes, we'll go ahead with it. Our only desire is to ensure that we obtain LEGAL ownership of the property, and I still have lingering suspicions about the involvement of MERS in all of this. Hopefully, I can get some clarification from the title officer assigned to our case. 

My wife and I are both scientists, not lawyers, so neither of us have a good understanding of legal jargon. I don't even like reading patents, but I've read enough of them over the years that I understand most of the typical scientific terminology. But this world of "trustees, beneficiaries, assignments, reconveyance, etc." is practically a foreign language to me at this point. Hopefully, I'll understand more after talking with the title officer next week.

Again, I appreciate all the help from you and other members of this forum. I’ll update this thread as we continue through the process..just in case anyone else coming to this forum finds themselves with similar questions.

Regards.

Bob

[DrBob601]

Correction: after doing a bit of internet research I found that Recontrust is just a subsidiary of Bof A that handles mortages tha have been defaulted on. I guess they're essentially B of A's debt collector...and NOT the "Investor" we're supposedly dealing with.

Reading through this title report really is like translating a foreign language. Fortunately, I have wikipedia and other sites to help me out.

As an aside...my internet research thus far has led me into some really depressing stories. So many people getting foreclosed on, trying to avoid foreclosure, etc. It's awful. Also a few maddening stories where it really does seem that the homebuyers were tricked by their mortagge broker. Seems like fraud to me.

Anyhoo...Gotta get back to my research! 

[DrBob601]

OK, so we've pretty much decided to consult a RE attorney before we continue with this transaction. Our plan is to find an attorney who's familiar with the issues with MERS and how it might affect the purchase of a property whoce mortgage was securitized and registered with MERS.

The reason we're getting more concerned has to do with this one Calif case we found involveing a short sale and subsequent lawsuit challenging the validity of the sale:

"MERS and Fannie Mae sue Short Sale Seller and Buyer"  

http://www.realtown.com/DiabloValley/groups/short-sale-strategies/view/34312

Now, we have no idea at this point whether "robosigning" (or any other sketchy practice) was involved with the sale of the MBS associated with this mortgage loan....and I still plan to talk to the title search company early this week for clarification of some cloudy issues. But neither of us is really comfortable with proceeding further until we have a better idea as to whether (a) we'll have legal ownership after proceeding with the purchase; and (b) what kind of protections we would get from purchasing an owner's title insurance policy.

We just want to buy a house. We don't have any interest in becoming defendants in a lawsuit challenging the validity of our ownership a year or two down the line. I'm starting to think that this MERS issue is a huge can of worms that's going to take a while to clarify. We'll see what an attorney thinks about it and decide how to proceed from there.

[Coleberd]

DrBob and general question to all... How did that work out? Also seeking a RE attorney to review a REO property purchase in Riverside County as we want to be assured of clear title after the escrow is complete. We will get an owners title policy but have heard that there might not be complete protection there either. Is that correct?

[elbarco]

Remeber that a title policy is not a guarunty, it is an insurance policy.  So, the key is understanding what is being insured, what is the scope of the insurance and what exceptions there are to that insurance.  Generally the owner's policy will be saying that you are obtaining title subject to certain excpetions.  There will be a section stating what is insured and what is not.  There will also be a section of standard exceptions.  There will be a section of exceptions that are paticular to your property; the Schedule B exceptions.  For the first 2 categories, you would want to make sure there is nothing slipped in there saying they don't insure against defects in title due to a defect in the foreclosure process or similar thing.  This would be their way of saying they won't insure your loss if the bank didn't foreclose correctly.  I have never seen that in the standard language, but I wouldn't put it past an insurer to slip something in.  Now, for the Schedule B exceptions, I recently saw a preliminary title report with 2 exceptions that read: 

8. Any irregularity in the foreclosure proceedings leading up to the Trustee's Deed recorded

January 12, 2012 as INSTRUMENT NO. 11-594658 of Official Records.

9. Any right or asserted right of a creditor, trustee or debtor in possession in bankruptcy to avoid

that certain conveyancing document which recorded January 12, 2012 as INSTRUMENT NO.

11-594658 OF OFFICIAL RECORDS , pursuant to Title 11 of the United States Codes.

That means that in this instance the buyer was taking 'subject to' those defects and if anytthing were to occur in the future as a result of those two things, the buyer would not be insured for the loss.  If the title company will not remove those exceptions (and you can't find a title company that will) then a buyer would want to make sure that the bank selling the property gave a specific representation and indemnity to the buyer in the case of a loss realted to those two things.

[kayakmike]

If you have any concerns, be very thorough in your research. Go to the county Recorder’s office and thoroughly trace the property history. Go to the county Department of Planning and Land Use (or whatever for your city) and research permit history, violations, etc. Hire lawyers if you don't feel comfortable, though there is no guarantee they will find everything associated with a property of interest.

Like several others have said, its title INSURANCE. We currently own 4 houses (ours and investment/rentals), and have owned several more. Most of the time you will never have an issue with title. But it is INSURANCE, and the title INSURANCE company is playing the odds. They do a cursory check of public records, charge you a premium for ~ 1 hour of research, issue you a policy, and send you on the way. 99+% of the time, there isn't an issue with that approach, and the title INSURANCE company makes a pretty penny for very little work. It’s no different than your medical or auto INSURANCE.

For the 1% of the time something wasn't caught, the title INSURANCE company is responsible for correcting it (within the coverage of the INSURANCE policy). Most of the time they are minor issues that won't take long (or cost the company much) to correct.

We got burned by something that happens 0.01% of the time (or less). The VP of legal for the title INSURANCE company for all transactions west of the Mississippi said he's never seen anything as messed up as our situation (lucky us!). There is a subdivision violation on our property that didn't come up during the routine title search, and we didn’t find with our research either. We only found there was a problem when we tried to pull a permit to do some work on the house, and then had to dig deep to find the complete history of what happened.

The reason I emphasize that it is an INSURANCE policy, is that we never realized what the title INSURANCE policy covers (or doesn’t cover) until you actually need to use it. I’ve always been told that the title INSURANCE policy will fix everything, but it doesn’t. Since it is INSURANCE, there are deductable & coverage limits. They do cover all legal/lawyer fees (separate from their coverage limits). The deductible is 1% of the purchase price of the house, so if there are costs associated with fixing the problem, then the first chunk of money is coming out of your pocket. There are also maximum coverage limits that limit how much the title company will pay to correct the problem.

Now that the subdivision violation is known, we cannot sell, re-finance, or improve the house until this is fixed. The INSURANCE policy explicitly states that it does not cover subdivision violations. Fortunately, there is a covered risk that states that if we cannot obtain a building permit, then we are covered. But to fix the situation, we may have to purchase the adjacent lot that we don’t really want, and purchasing that lot will cost us significantly more than the maximum coverage limits of the policy, which means that is coming out of our pocket.

Ironically, since we may have to purchase the adjacent lot, we had the title company pull a preliminary title report for that lot. Even though they are fully aware of the subdivision violation and why we wanted them to pull the report, they still didn’t list the subdivision violation on the adjacent lot.

Mike

[elbarco]

Mike, sorry to hear about your troubles.  At least you can say you are part of the 1%.

[rchen]

Hi Elbarco, 

I'm in the exacty situation that your post describes -- could you or anyone else give some advice on how I should proceed? 

The situation is:  I'm about to purchase a home that was foreclosed on in August 2011.  The earnest money deposib has already been transfered to escrow and the contigency period ends at end-of-day this coming Monday (help!).  The preliminary title policy has the exact language that you listed below (but with info for my particular policy filled in):

8. Any irregularity in the foreclosure proceedings leading up to the Trustee's Deed recorded

January 12, 2012 as INSTRUMENT NO. 11-594658 of Official Records.

9. Any right or asserted right of a creditor, trustee or debtor in possession in bankruptcy to avoid

that certain conveyancing document which recorded January 12, 2012 as INSTRUMENT NO.

11-594658 OF OFFICIAL RECORDS , pursuant to Title 11 of the United States Codes.

JPMorgan's (current attorney-in-fact for property owner, which is Wells Fargo) addendum to the real estate contract basically states that they will not indemnify for matters related to title.  What are my risks and options here?

1) Insist that the title company remove the exception, and if it doesnt do so, find one that will? Should I exercise the contigency first / make sure that it's extended?  (Since I probably wont be able to find a new title company that will definitely issue the title policy I want on Monday).  

2) How risky is accepting both the langugae above and not having an indemnity from JPMorgan?  Somehow, I dont think they'll be willing to budge on their addendum language. 

Any other thoughts or suggestions?  Thank you!

[elbarco]

I didn't see your post until now, hope it worked out.  From your post it seems that this is a bank owned home and the bank is selling it.  the title company won't insure defects in title as it relates to the foreclosure.  To make matters worse, the bank that actually did the foreclosure won't indemnify you for defects in their own process.  Seems like a pretty risky proposition to me.  Typical banks.  They want to use the fast-track trustee sale process to take the property back but then won't even be stand up and assure a buyer that they followed the law in doing it.  To me, this is unmarketable title unless at least one of the two, preferably both, will change their position.