Short Sale Problem - Late Title Search Uncovered Second Lien

We are buying a short sale.  This forum has helped a lot to understand the processes and potential things that can go wrong, so thanks to everyone who contributes here.  After months of waiting for response from first lien,  and then negotiating back and forth on price, we finally received an approval letter in July.  We immediately had home inspection and rush to our lender to get financing.  Everything is ready to go, our loan is through underwriting and literally at the closing department, so we can meet the expected closing date of August 19.  On August 16, we received a call from our agent that the title company just did the search (they did not do it up front) and uncovered a second lien, in the form of a HELOC.  Naturally we are shocked, but there seems to be nothing we can do.  The attorney's office, which is handling the short sale negotiation for the seller and is the same office as title company, told us that they have already received a payoff from the first lien, and have contacted the junior lien.  They said their goal for resolution is two weeks.  I don't know from where they have this estimate - if it based on something concrete or just something they are telling us.  The sad thing is, we knew there was a second because it was on the seller's disclosure.  However, we assumed that since we never heard anything about it, it had been satisfied in some way.  We also did search on MERS and did not see it there.  We trusted the professionals.  Our questions are - has anyone on here been in a situation like this?  Is there anything that we should be doing?  Do we have a hope is actually closing this transaction?  Thanks in advance for your help.

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Permalink Reply by Jaime Kosofsky on August 21, 2011 at 11:03am
As an attorney who negotiates a bunch of short sales, and who as been in the ss biz for nine years my number one rule is get a title search. I cannot tell you the number of times I have seen a short sale go down in flames because nobody did a search until the contract was entered and the buyers attorney pulled title. By searching early you will not only know what is on title that needs taken care of, but you might also see a strategic or tactical flaw which may make the difference in whether the bank will be willing to work. A title search is crucial to your short sale success. The down side is that they tend to be expensive and the sellers are reluctant tonspend any more money on the house... Fact of the matter is, by spending the search money up front, the success rate will be much higher with less frustration
Permalink Reply by Thom Colby CA Brkr 888-391-5245 on August 21, 2011 at 5:42pm

Cotz, this is not surprising what so ever.  I think the real problem here is the Listing Agent and Title Company didn't pull a Preliminary Title Report as soon as you made an offer and it was accepted by the Seller.  The Seller certainly knew there was a HELOC - at some point they were paying it and stopped !

 

Unfortunately, this may not get resolved very quickly especially if the 2nd has been sent to collections. 

Last year I had a buyer on a transaction and although there was not a HELOC on Title everyone knew it existed and I explicitly wrote that both the 1st and the 2nd had to be approved by both lenders for a short sale or the transaction was cancelled and all deposits returned to the buyer.  Teh 2nd was never recorded with the County by the Builder!  The Title Company tried to close the transaction without satisfying the 2nd, but we got it stopped.  It took 3 additional months to get it resolved and the 2nd (Collections) would not release for less than 20% of the unpaid balance which was more than $100,000.

 

If we had not stopped the closing and resolved the issue, my buyer may have owned a house with an additional $100,000 loan against it !

 

It's not fun, and it's getting more complicated everyday.  We (as agernts / brokers) have to cover all bases at the very beginning to protect our clients.

 

Best of luck,


Thom Colby

Broker

Newport Beach CA

Permalink Reply by Cotz on August 22, 2011 at 3:53am
Thanks for the replies!  It is surprising that they did not order a preliminary title search.  We're in Florida and short sales are part of everyday life here.  The title company and attorney market their services regularly as short sale experts, but they have yet to perform on this one.  The listing agent/broker missed it also.  I dont have an issue with the seller - he disclosed it and left it to the professionals.  Our main concern is trying it get it resolved as quickly as possible.  Does anyone out there have any connections please - the second is a National City/PNC HELOC.  Thanks
Permalink Reply by Thom Colby CA Brkr 888-391-5245 on August 22, 2011 at 4:05am

 

It is the Seller, Listing Agent, and certainly the Attorney's issue.  I expect your Sales Contract is very similar to most other States where the SELLER has to provide the Buyer with the Prelim Title within a certian number of days after execution of the contract - That's when the seller and buyer have both signed the contract - NOT once the bank approves it !

 

Our market is very similar to yours with the volume of short sales.  Almost 100% of my business for the past 5 years has been short sales for both my own clients and negotiating for other brokers.  We always ask for a Prelim on the day after everyone has executed the contract and an update to it each 30 days thereafter.

Hopefully the Listing agent, Seller and Attorney will get this resolved quickly for you.

 

Best,


Thom Colby

Broker

Newport Beach CA


Cotz said:

Thanks for the replies!  It is surprising that they did not order a preliminary title search.  We're in Florida and short sales are part of everyday life here.  The title company and attorney market their services regularly as short sale experts, but they have yet to perform on this one.  The listing agent/broker missed it also.  I dont have an issue with the seller - he disclosed it and left it to the professionals.  Our main concern is trying it get it resolved as quickly as possible.  Does anyone out there have any connections please - the second is a National City/PNC HELOC.  Thanks
Permalink Reply by Cotz on August 22, 2011 at 7:47am
Thanks Thom, any positive vibes we can get would be appreciated!  We thought we were educated buyers but it is a rough world out there.

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