Posted by Sue(NC) on March 26, 1999 at 09:53:27:
I know that in the past, we have argued with our insurer to allow us to insure for value OVER our purchase price. Since we are buying at a discount and almost always improving the property, we have not had any problems doing so…yet.
I would also like to hear from title insurers…
When I have 45K in insurance bought in 1985, does that get inflation adjusted for future claims?
How about properties bought at a steep discount?
TITLE PROBLEM…what do you folks think??? - Posted by johnman
Posted by johnman on March 25, 1999 at 16:27:16:
Here’s good one
I’m working on an REO. After my lawyer completed the title search he told me we couldn’t close. He said when the bank foreclosed, they only have HALF interest on the property and the other half is owned by the person foreclosed on. I spoke with the bank manager and he said he sent my lawyer an “Indemnification Letter” (did I spell this correctly). My atty said this isn’t good enough. He said this doesn’t clean up the title.
Is there such a thing as Indemnification Letter? Has any of you dealt with this problem before?
Here are the details on the prop:
purchase price $38K
repairs needed $12K (approx maybe less)
ARV $88K+
Any input would be valuable.
Thanks,
Johnman
Re: TITLE PROBLEM…what do you folks think??? - Posted by Rob FL
Posted by Rob FL on March 26, 1999 at 16:57:30:
I would ask to see whatever title information the bank or attorney has. It sounds like you or someone is confused about this. Unless the person who gave the mortgage to the bank only owned a 50% interest in the property he mortgaged, when the bank foreclosed they should have gotten the complete 100% title.
An indeminfication letter is used when a title company screws up. They issue a title policy and there ends up being a cloud on the title prior to the date of the policy. Instead of spending money locating people or quieting title, the title company issues an indeminfication letter to the new title company who will be issuing the title policy when you go to purchase. The letter simply states that xxx title company agrees to indemnify yyy title company if a claim ever arises because of zzz cloud on the title. Usually if it is a minor problem, most title companies will accept this indem. letter. On major problems forget it. I work for a title company BTW. www.thefund.com Hope that helps.
Re: TITLE PROBLEM…what do you folks think??? - Posted by Sue(NC)
Posted by Sue(NC) on March 25, 1999 at 17:49:59:
Your post brought back some bad memories…
Bid on a foreclosure a while ago. In those days I would search the title to the property by checking deeds of trust, liens, and that sort of thing- but I never checked behind the trustees to make sure they did their jobs correctly (I do it now, EVERY time, and can tell you- they screw up from time to time)
Anyway, one trustee had failed to notify the 2nd holder about the impending sale of the 1st. The 2nd holder was claiming no knowledge of the 2nd mortgage (remember this when you hear those due-on-sale arguments about how much the lender knows/cares).
The solution was that the trustee who held the sale posted an INDEMNITY BOND with the title company. The bond stated that the trustee would repay all losses to the title company should the 2nd holder reappear. The title company, in turn, gave us clean title insurance (WITHOUT the exclusion for the 2nd).
Check with your title insurer- perhaps they will accept a bond from the bank, & insure your title.
btw- we used Lawyer’s Title, and they were OK with the bond.
Re: TITLE PROBLEM…what do you folks think??? - Posted by Bud Branstetter
Posted by Bud Branstetter on March 25, 1999 at 17:42:07:
Since I don’t have the documents your attorney is looking at I can only guess that the note was only against a half interest. If he is right the indemnification letter solves the banks problem. They would only be liable for that portion of the sales price. The title policy would exclude guarantees since they would do the letter. The former other half ownership could still come back on the difference between fixed up value and purchased value.
I would solve the problem by trying to get a deed of some type from the other half.
Thanx for sharing!!! (nt) - Posted by Mark (SDCA)
Posted by Mark (SDCA) on March 25, 1999 at 16:30:19:
nt
Re: TITLE PROBLEM…what do you folks think??? - Posted by JOHNMAN
Posted by JOHNMAN on March 26, 1999 at 18:57:55:
Rob,
When my lawyer told me about this I was confused but I asked him to clarify and he did say that the bank doesn’t own 100% interest on the property. Another person has interest on the property. How can a bank foreclose on a property and not get 100% interest? Please help me understand.
Thanks,
Johnman
Re: TITLE PROBLEM…what do you folks think??? - Posted by johnman
Posted by johnman on March 25, 1999 at 18:08:39:
Sue,
Sorry buddy! I didn’t mean to bring back bad memories. My atty will not close on this deal unless he sees paperwork that shows the prop is free and clear. The bank manager stated to me earlier they are willing to place title insurance but didn’t mention anything about INDEMNITY BOND. Will I need both (bond and insurance) if my lawyer accepts it? Would any lender go with this? I’m just worried that my Hard Money lender will say NO to the deal since my atty is also their atty. This is the only hold up, financing is ready to go!
Re: TITLE PROBLEM…what do you folks think??? - Posted by johnman
Posted by johnman on March 25, 1999 at 17:58:45:
Bud,
That’s what I told the bank manager I was going to do but he told to wait and he will contact the foreclosure attys of his bank to see if they missed place any documents to clear this title. Is this a common occurence? Is this really possible?
Thanks,
Johnman
Re: TITLE PROBLEM…what do you folks think??? - Posted by Rob FL
Posted by Rob FL on March 26, 1999 at 20:52:26:
If the title is truly as you say, then this is what the problem is. The mortgagor who was foreclosed on either (1) only mortgaged a 50% interest in the property even though he owned a 100% (which is highly unlikely) or (2) the onwer only owned a 50% interest in the property when he gave the mortgage to the bank.
Here is an example. Allen owns 100%. He deeds 50% to Bob and 50% to Charles. Bob deeds all he owns to Donald, but Charles is accidentally forgotten and does not sign the deed to Donald. Donald thinks he owns 100% but in fact he only owns 50%. So when he mortgages to the bank and then gets foreclosed the bank only gets 50%. Below is a diagram. (Chain of title is what us title nerds call it)
Allen
!
/
Bob 50% and Charles 50%
!
/
Donald 50%
!
/
Foreclosing Bank 50%
Hope that helps.
Re: TITLE PROBLEM…what do you folks think??? - Posted by Sue(NC)
Posted by Sue(NC) on March 25, 1999 at 19:42:46:
My lender (not Hard Money) was OK with the deal as long as the title policy guaranteed us clear title. The title company was willing, since they could just go back to the trustee & get reimbursement if we had a claim based on the 2nd deed of trust.
We needed both the bond & title insurance- the bond was from the trustee to the title company (we were not named) for the amount of the 2nd deed of trust in question. We still needed title insurance for other claims, etc.
In our case, the originally suggested solution was for the trustee to give US the bond, but the title company balked. They wanted the bond to cover them directly.
I would hope any lender would be OK if you had title insurance that guaranteed clear title- but I’ve never gone with hard money.
Re: TITLE PROBLEM…what do you folks think??? - Posted by johnman
Posted by johnman on March 26, 1999 at 16:08:07:
Sue,
What happens when you decide to sell? The property doesn’t have “clear” title. Would you have to go through the same thing again?
Johnman
Re: TITLE PROBLEM…what do you folks think??? - Posted by Reif
Posted by Reif on March 25, 1999 at 21:20:00:
I’m just a new guy, but it seems to me that even if you got an indeminity bond, whatever that is, they probably will only cover you for the PURCHASE price of the house.
So you’re covered for 38K or whatever and mystery man shows up just before you sell the house for 88K - and he wants half.
Now you only get your 38K back? Or do you get the 38K plus half of the 88K selling price?
I suspect you’re gonna half to track down the other half of the title to be able to sleep at night.
Reif
Re: TITLE PROBLEM…what do you folks think??? - Posted by Sue(NC)
Posted by Sue(NC) on March 26, 1999 at 22:46:07:
For the last three homes we sold, the buyers secured re-isssue title policies from the same title company that we used. That costs the buyer half the price of a new policy, so they usually go along.
I’m not sure, but I think my title company is still on the hook for claims arising prior to my ownership, even if the new buyer uses a different insurance provider. Anyone know for sure?