If the 1st never recorded? - Posted by Shawn J. Dostie

Real Estate Investing Real Estate Law
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Posted by John Merchant on June 15, 2003 at 10:07:18:

Shawn

Very interesting! Odd situation indeed.

As I see it, you’re basically taking title owner’s word that there IS another loan, that should be in 1st position. Is this right? But you’ve really seen no evidence this is so?

If that’s the case, and the title company will issue a title policy with only the recorded lien, I’d say go for it and let them worry about it, should anything ever happen to wake up the missing lien.

In my book (and the law, generally) the written, provable always takes place over the unwritten, non-provable, and if you haven’t actually seen the original loan & Deed of Trust docs, and all you have is the owner’s oral “tale”, you really don’t have any actual knowledge or notice there IS another loan that might be ahead of the $14k.

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If the 1st never recorded? - Posted by Shawn J. Dostie

Posted by Shawn J. Dostie on June 15, 2003 at 06:57:22:

I have a frind with a situation and need to pick your brain.

Ok, hang in here with me on this one. I need guidance.

Condo in foreclosure. Back in 10/02 I tried to help the Seller by attempting to reinstate the loan. I was going to rent back to him for a few months. He signed the deed over to me, authorizations, etc. There is a 1st and supposed 2nd mortgage.

1st - approx $50k
2nd - approx $14k
Condo value - $65k, I thought at the time, now looking like $75k if I do a little to it

I paid to reinstate the 2nd (stupid me) but the 1st’s balance according to the attorney was much higher than I thought so I let it go as a learning experience.

Now, 7 months later, I’m waiting for it to go to sale so I can perhaps redeem and sell it for the higher amount - values have gone up a bit. Seller is still living there and knows he can live “rent free” for 6 mos after sale due to redemption period. So I decided to try to short the 2nd because last time I talked to them they were open to it.

Called the county to get contact info (lender name) for the 1st because I had lost the attorney’s phone number. Now the interesting part.

County said the only mortgage recorded was the 2nd. No 1st mortgage filed (well, this is the 1st, but you know what I mean - other lender is missing in action). No foreclosure proceedings filed at the courthouse, no sheriff’s sale scheduled that they could tell. Hmmm…

So I ordered preliminary title work through my title company and they gave me a preliminary commitment with the condition of the $14k loan being paid off. Again, no mention of the larger mortgage.

So, I’m thinking… do I pay the $14k loan off and sell it? Hope the title insurance covers me if the bigger loan comes back? Scary thought.

Better thought… what if I were to sandwich myself in there somehow - I know the Seller would sign a mortgage to me - especially if I gave him a couple thousand to move out and move on. I already have the deed. So if I give him a couple thousand, can I have him sign a mortage for $50k and file it on the property, so if it goes to sale by the larger loan, they have to pay me off as well as the $14k loan? If they’re not recorded, I’d take priority, right? Is there anything illegal about that if the Seller signs it?

OR, after I get it signed and recorded, I call the larger mortgage company, advise them their people never filed their mortgage and they are in 3rd position, and short sale them for next to nothing to clear the title of that loan?

I see a lot of opportunity here due to this mistake on their part, but I don’t want to do anything illegal or that can come back at me. However, no need to pass it by, either, if the Seller is perfectly willing to cooperate. I have to hurry - they’re going to realize it sooner or later since they are working on foreclosing.

Advice??

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Re: If the 1st never recorded? - Posted by Tom-FL

Posted by Tom-FL on July 01, 2003 at 18:37:08:

>> 1st’s balance according to the attorney was much higher than I thought

What attorney? Apparently someone can see the loan besides you.

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Re: If the 1st never recorded? - Posted by John Merchant

Posted by John Merchant on June 16, 2003 at 13:58:02:

While Dave K is technically correct here, I’d approach it from the direction of seeing if the title co. would issue a title policy and if they will, go with it…without making any effort to learn more!

This is analogous to Holder in Due Course doctrine, in my opinion, in that if you DO a great deal of research, and discover the missing 1st, then you certainly could not then, in good faith, pretend you didn’t know about it…and if I were representing the title insurance company and defending my company against a claim made by you, I’d make every effort to kill your claim because of all your knowledge, and I’d say you now have no right to claim you didn’t! I think I could probably successfully defend against a title policy claim if I could prove the claimant knew more that my company did.

But right now, not having any real knowledge about it, I’d rely on the title company and not try to be my own expert.

After all, who is more expert in digging up liens, mortgages, title problems…you or the title company?

So if it were my problem, I’d absolutely make NO more calls to anybody, and work hard NOT to learn any more about the situation personally. The more you do here, the worse you’re positioning yourself, IMHO.

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Re: If the 1st never recorded? - Posted by Nate(DC)

Posted by Nate(DC) on June 16, 2003 at 12:47:26:

The problem you would have is that even if you have only vague “knowledge” of this other mortgage, you do have SOME, and so if you denied it to the title company you could be considered to be conspiring to defraud.

To really be in the clear, I’d think, you would need to get the details of this “mortgage” - lender, loan #, etc…and take that to the title co. and say “I want you to specifically search for this”. Then if they can’t find it…you’re in the clear. You tried. You made it known that you thought it was there. And it wasn’t.

NT

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Re: If the 1st never recorded? - Posted by David Krulac

Posted by David Krulac on June 16, 2003 at 07:15:13:

this situation seems so improbable to border on impossible. Personally in 4 decades I’ve never seen an institutional 1st mortgage that was not recorded.

Perhaps its in somebody else’s name? perhaps different name for same person, like married, or maiden name. IMHO, its much more likely that either the mortgage was missed in the search, I would never rely on the word of the county and am surprised that they would even give that information.

I’d go back to the seller and get more information and a copy of the mortgage with the recording location, and also possibly get a deed from the seller.

I’d also search the title myself looking for that missing mortgage and get another search from another company.