Expert: Connie Wildasinn-Broker,GRI,Realtor® - 10/13/2010

Question
QUESTION: Hello Connie,

I recently completed a short sale (i was the seller) here in California.  It closed on August 13, 2010.  I was under the impression that the primary lender (which covered 80% of the purchase price) was the only entity that I needed to negotiate with.  For the remaining 20% of the purchase price, there was a combination of I think 4 other loans.. in addition to the 3% I put down.

In talking with the primary lender, I had the impression that the other loans were all subordinate -- and that if the primary lender approves the short sale, all other loans have to cooperate and go along with the short sale (and remove their liens from the property).

So as I mentioned, this short sale closed on August 13.  The following week I discovered one of the smaller loans was still active.  They had not been informed of any short sale, and as far as they were concerned, I still owe them money.  Current balance on that loan is about $9,000.

I spoke with the title company, who acknowledged that they made a mistake and should have caught this matter during escrow.  They also said they will file a title insurance claim to pay off the balance on this loan.

This has always been my (layperson's) understanding of what a title company does.  They take responsibility for any outstanding liens that slip under their radar.

Well a few weeks go by, and now the title company is apparently backpedaling on their decision to pay off the loan via title insurance.  They've told me that all further communication needs to happen through their attorney.

It appears that they are fighting the situation and refusing the pay off the lien.

My big question for you is - what do you think of this situation?  What is the title company's responsibility and what is mine?  As of right now I dont have any sort of stick to wave at the title company.  The $9,000 loan is still in my name, and it's my credit rating that will be hurt if I don't pay off this loan.  Looks like the title company can just sit there and do nothing if they want.

Anyhow I'd be very curious to hear your thoughts on this.

Thanks!
Eric


ANSWER: Hi Eric,

A lot of the detail is sketchy, but from what you say you had 4 other loans on the property after the primary 1st.  The primary 1st was paid off but the at least one junior liens was not satisfied and closed out... Hence the $9,000 issue.

The title says they 'missed' this lien and would cover... then retracted the offer?

I don't know how you took the loan, secured or unsecured and they may have simply attached it to the home & your name?  Not all loans are secured to a property, so that if you sold someday they in theory would be paid...

Title typically will cover liens not caught,as this is what they are paid to do, that is (you are correct) what all that title insurance is for.. you don't mention who the title company is... I for one only deal with the big title companies, because when an issue arises I want the backing of a 'A+' rated title co.  and they do pay the mishap...

You don't mention the other loans, hopefully they were satisfied and in regards to you deposit/down payment...that was lost when the home price fell below your purchase price... (assuming you never re-financed)

Keep in mind even in a short sale your credit has been compromised, so you no longer have pristine credit.  

I would send a letter to the lien company and to Credit reporting agencies for dispute, explain you no longer own that property and to take up the matter with the title company.

I have heard there a scams out where lenders and servicing companies are selling these defaulted notes for pennies on the dollar and then (sometimes up to 7 years later) coming after the sellers and telling them that money is still due.  Don't be fooled... have a good Broker/Attorney review the documents you got on the approval of the sale, and find out if any other liens were paid off... you can also look at your HUD1...closing statement.

Also if you feel that the escrow company did not do their job, find out if they are DOC - Department of Corporations or DRE - Department of Real Estate and report the transaction... there are recovery funds in each if you have been wronged and can prove the wrong.

Your only other option is to try and settle with this 'company' that says you owe 'x' and try and do pennies on the dollar.. like "I have $100.00 to day if you report this as paid in full" But what ever you do ... GET IT IN WRITING! and a managers signature.

Good luck

---------- FOLLOW-UP ----------

QUESTION:

Connie

Thanks for the quick and informative response.

When i first bought the property in 2005, I went through a 1st time homebuyer program.  It was a sort of one-stop shop for a collection of loans (primary and "down payment assistance").  The primary loan came from the Calif Housing Finance Agency (CalHFA) - or, it was transferred to them shortly after the purchase because that's who i've been sending big checks to every month for 5 years until recently.  

It was 30 years fixed at 4.25.  I put down 3% cash if I remember correctly.. the remaining loans I think originated from Neighborhood Housing Services Silicon Valley (NHSSV) -- the organization that put it all together.  As far as I know, they are pretty reputable, still in business, etc.

All but one of the 'down payment assistance' loans were simple interest deferred.  I did not need to make any payments on them.. they accrued interest but it was simple interest, not compound.  They were very out of sight, out of mind.  The only condition was that if i refinanced or sold the property, those loans would become due and payable in full.

I never did any refinancing, nor any HELOCs.  I was the only owner for the entire 5 years I was there.  I also never had any other liens placed on the property to the best of my knowledge (such as a contractor working on the house and I didn't pay them).

One of the loans was a standard compound interest loan.  It originated from NHSSV, was trasferred one or two times, and ended up with Neighborhood Housing Services of America. (NHSA).

In the escrow documents, it showed payoffs (of $1,000 each) going to 3 different loans identified as "Neighborhood Housing".   Note that NHSA and NHSSV are totally separate entities despite having the first 3 words of their name the same.  So I think this might have been part of the confusion.

The title company is First American, they seem pretty big and reputable.  They indeed initially said they would file a title insurance claim to take care of this outstanding $9,000 lien.

I just learned later this afternoon that there's another outstanding lien of $30,000.  I dont know who has this lien.. it was one of the simple interest deferred loans.

All of the original loans showed up on the title report from earlier this year -- does this mean they are secured to the property?

If a lien is secured to the property, am I really free from obligation to pay it back if escrow has closed and I no longer have title?

NHSA says that when I first got the loan, i signed a paper saying that I would pay off that loan in the event that the property is sold.  I imagine I truly did sign such a paper.. and if I did.. can I *really* be free of this obligation?

Getting an unsecured loan sounds pretty sketchy.. im not sure why any lender would take such a risk and not have collateral interest in the property.. I'm 99% sure all the loans I got for this property are secured to the property, as is reflected in the title report.

I am aware that my credit is taking a hit by going through this, I just don't want it to get any worse.

Thanks!
Eric  

Answer
Hi Eric, sorry your question got lost and I was answering another and found your question...again sorry...

Sorry to hear you are in this delima.. I think a consult with a Real Estate lawyer is up your alley at this point..

the loans you took are assistance programs, not quite the same as regulations 2nds on the open market... they are tied to a lot of restrictions because many times those funds are from state bonds and such to help people out with all those early making homes affordable city programs... and since I don't know exactly what you signed off on at the close this time... you may have now a 'recourse' loan that even though it is not 'tied' to a property it is now an unsecured loan against your name...the banks try this all the time, to get more money they the short sale is delivering and because most seller don't read the fine print, or the agent doesn't or everyone signs but has no intention of paying... and letting that loan go to collections... sometimes that is the only option to get the deal closed...most notes done at short sale time are for 0% interest on a 10 year full amortization schedule...

I believe most of those loans did not sunset (go away) until 10 years mark... so you were only 1/2 way there in 5 years...

The best you may be able to do is negotiate a reduced cash pay off and get the loan cleared off your name....

Seek council so at least you know your options... good luck