Insufficient payoff from refinance - 2 lenders fighting over 1st lien position
I am at the point where 2 lenders are fighting over 1st lien position. To my knowledge when the short sale process began, we had a 1st and 2nd with Bank of America and a 3rd HELOC with Citizens. Upon Citizens pulling title, they informed me that their lien was recorded in 2006. Countrywide gave a mortgage to the homeowner in 2008 - a payoff (inaccurate payoff) was sent to Citizens with a request to close the account. Multiple letters were sent back to the closing Atty letting them know that the account would not be closed and that there was still a remaining balance. There was no subordination agreement. Citizens informed me that the only way to move forward would be to get Bank of America to prove that they are in 1st and 2nd lien position, or accept that Countrywide never paid Citizens off in full.
I have been shuffled around to 30 different departments at Bank of America. After weeks of shuffling (and exhaustion) I finally tweeted Bank of America and got a response. I have been speaking with a gentleman in the Mortgage Servicing Escalation Department about these issues. He feels that the homeowner is 100% liable for the debt and is not willing to accept the fact that Citizens should be paid off. I emphasized to him that Citizens has a valid 1st mortgage and that if the property were to go to foreclosure, Citizens would be paid off. Citizens would be smart to foreclose at this point. The offer we have on the table will pay off Citizens if Citizens was in first lien position. The offer we have on the table would pay off Bank of America if Bank of America was in first lien position. The offer is not sufficient to satisfy full payoffs on both. Then there is the 2nd mortgage with Bank of America, but I haven't even gotten into that one yet.
Bank of America is digging their feet in the ground feeling that they would rather run the risk of going to foreclosure and going through litigation for the next x amount of years than try to come to a resolution - BofA will get CLOSE to a full payoff if they settled with us.. if/when this goes to foreclosure they will get much less.
Citizens is standing firm (and I can't really blame them) at the fact that they are entitled to a full payoff. Without going into an incredible amount of detail, has ANYONE experienced something like this before? Is there ANYONE out there that might have some direction? Or is this a lost cause?
Replies to This Discussion
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Permalink Reply by Wayne Brooks on
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Sounds like a fun one.
How much are the amounts owed to the three lenders?
Home value?
Sounds like someone at B of A needs to accept, they are second. Better talk to the 3rd lien though. If they're not cooperative, nothing else matters.
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Hi Wayne - Citizens balance is 151k, BofA 1st balance is 420k, BofA 2nd balance is 52k. Home value is 543k. I keep climbing up and up the ladder at BofA and the further up I climb, the more stubborn they get on the other end. I understand everyone wants their money but it is a lose lose situation for BofA and they need to acknowledge that they are better off settling.
I went back to Citizens to see if they felt it was in their best interest to run this through litigation or help us settle and get this deal closed within 30-90 days. I offered 70% of the loan balance as full 1st payoff if they were to offer me some sort of a discounted payoff to give BofA some incentive to also work with us but Citizens isn't budging - they want a full payoff and they feel they are entitled to it.
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Well, you can't really blame them. Your seller did hose them pretty good it seems. I assume their errant pay off was just a little bit off, not $151k, which means the seller ran this credit line back up after he knew it was supposed to be gone? Sometimes, fair is fair.
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Thanks, Ron. I was awaiting your insight as it is usually helpful coming from a lender's POV.
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This is a tough one - no one seems to be willing to give. So here is my suggestion: Bank of America/Countrywide received title insurance when their loan closed. Given they are not in first position, they have the right to file a title claim. Then the title insurance company will get involved and will step in and talk to Citizens and try to get them to settle. Why this might be helpful is ultimately, the title insurance company will be on the hook and have to put up cash to settle this - just like any insurance, they have to pay out. This would also be an issue if it goes to foreclosure as well - a title claim is going to be required by Bank of America (they file it). Unfortunately, its very tough to find the right person at the lender's office who handles these things. Double unfortunately, the title claim process is not usually fast - especially given this one will boil down to negotiations with Citizens. Unless your buyers are willing to stick around, I suspect you will ultimately be cleaning up this mess for the next potential buyer's closing. All of this will take escalating the issue within Bank of America to make sure they file the title claim. Then, they will have to follow up on the resolution of the title claim (given all of the losses/foreclosures/etc, title companies are also behind on reviewing their claims and it will take repeated follow up from Bank of America to make sure the title claim is handled promptly and correctly (its possible the claim will be denied...some title insurers simply deny the initial claim whether its warranted or not - if denied, this one should definitely be refiled because this definitely is an issue and needs to be handled. Prepare for a long, drawn out process however.
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Sarah, I don't think so. Any title insurances policy, whether to the owner or to the lender, is always predicated on certain events occurring. As usual, this policy would have been predicated upon the existing mortgage to Citizens being paid off, and that mortgage would have been specifically excluded from coverage. The closing agent however, has a much bigger problem, if theystill exist.
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Wayne,
I am 100% sure this is a valid title claim. I've been a title underwriter for 10 years. When Bank of America/Countrywide originated the loan, there was a Lenders Title Insurance Policy issued. That policy insured BofA that their loan would be in 1st position. Regardless of how or why that is not the case, BofA has Title Insurance coverage to protect them. The title insurance company must cover them. If the title insurance company wants to then go after the borrower or the closing company for not doing their part, they certainly can - but that's totally separate and apart from the fact that BofA has coverage for this issue directly from the title insurance company.
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What was the resolution to this situation? I have a similar issues involving BofA/Countywide being second instead of first as well.
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So did BofA effectively wipe themselves out by foreclosing from second position? BofA purchased property at auction so are they now sitting on a property they can't sale, because if they do sale all the proceeds go to the first (the amount due on the first it greater than the value of the property)? Because BofA currently holds the title they can't do a title claim until they sale it or the first forecloses to prove a loss? Trying to figure out how Title Insurance is suppose to work. I thought when you purchase a property at the auction you were required to pay off the first lien. I'm guessing the first lien holder is the biggest winner in this scenario.
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