Expert: Dick Dennis - 4/24/2011

Question
QUESTION: Hi, If I sell my home and I have an existing mortgage, and a small lien on the house. Then when the house is sold, the title company, before paying the seller first pays any taxes owed, then the mortgage, then any liens, and finally the seller.

How common is this, or does the seller first pay off the mortgage and liens before the house is put up for sale?

What complications arise out of this, and how big will the discounts be to the buyer, because first the title company handling this first pays the mortgage and liens before the deed is clear.

ANSWER: The title company's first responsibility in the sale of real estate, Dan, is to convey the property title free and clear of ANY liens and encumbrances. This chore will happen when the buyer and seller have signed all necessary documents, not before. The very first obligation is any property taxes, current and otherwise. Then any recorded liens (mortgages are considered liens) are paid in relation to the seniority they were originally recorded. Just because a property has a mortgage it does not necessarily mean the mortgage gets paid off first. If there was another kind of lien against the title that had a recording date senior to the mortgage, then the lien gets paid off first. But the bank, in most cases, will not have made the loan until ANY liens have been paid off prior to the mortgage being made and recorded. The bank (any lender for that matter) makes sure they are first in seniority (except for property taxes).

Then any succeeding liens are paid off in relation to their seniority, including any junior (second or third) mortgages. What has been presented here is what you and the buyer of your property may expect to occur when you finally do get a buyer, have signed and executed all documents and are ready to close and transfer title. I do wish you well.

Dick Dennis
dixiedee13@aol.com

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

QUESTION: Thanks for the reply. Yes I know a mortgage is a lien. Is there really any difference in the handling of the first, a mortgage lien, and the 2nd lien due to unsecured credit, besides the title company paying the first off first?

Should I be expected to give a huge discount on a home, because the deed is not clear to begin with, and is delayed because the title company must pay these first with the proceeds before it is clear?

About how long does it take to get a clear deed when the liens are paid trough the title company?

Would it be advised to pay everything off first, even current taxes before the home is put up for sale?

Again thanks for your time.

Answer
No, it is not necessary to pay off ANYTHING, Dan, prior to getting the buyer. Who is feeding you this stuff? Discount? Ridiculous.

The only time a discount is in the picture is when you are selling your interest in the mortgage. But that is not happening here. If you owned the mortgage, chances are you may own the house free and clear of any mortgages (but that is a different story all together). No, forget it. Someone is giving you wrong information. Just follow what I said in the previous email. Take care.

Dick Dennis