This real estate nightmare involves two sales of the SAME HOME on the SAME DAY, combined with some sloppy paperwork by the Title Company. Subsequently, the whole thing fell apart, just like a house of cards. I'm not trying to scare anyone, but really felt that this story needed to be told. It's something that home buyers, sellers or other agents need to be aware of.
The First Deal
After looking at several Destin homes, enduring inspections, appraisals, and lender related delays, our buyers were excited about closing on their new home last Friday. Everything went smoothly as buyers and sellers both signed their respective paperwork, the lender authorized funding, and the title company began disbursement.
We picked up our check on the following Monday and deposited it around 10:00 a.m.. Two hours later, I received notification from the Title Company of an issue and that they were stopping payment and would not be funding. They didn't provide many details but indicated that the seller had failed to disclose a 2nd mortgage related foreclosure.
After discussing with buyer, we started trying to understand what had really happened. What we found was the unthinkable. Not only was the 2nd mortgage being foreclosed on, the property was actually SOLD at the court house on Friday ... about the same time our buyer closed.
How can this happen? Isn't this exactly the sort of thing that title companies take care of?
What We Didn't Know
1. The title commitment, issued on June 16, 2016 clearly listed the lis pendens (notice of foreclosure) on the 2nd mortgage. The underwriter also required discharge prior to closing. Why the closing company blamed the seller is still a mystery to me. The closing company knew this all along.
2. The expiration of the above mentioned title commitment was Wednesday, or two days prior to closing. Updating it probably wouldn't have changed anything, but is another example of the sloppy title work.
3. The pay-off for 2nd mortgage was only good through Thursday, and listed the attorney contact for payoffs after that date. Again, very sloppy work. Had this been updated, we most likely wouldn't be in this mess. Keep in mind, the final HUD was prepared with an out of date payoff. Have you ever heard of that?
So, in short, the title company closed the sale of a house that had been auctioned at the courthouse steps. Once they realized their mistake, they immediately stopped disbursement and returned the funds to the buyer's lender the next day. More on this later.
Ramifications to the Buyer & Seller
For the buyer they lost their home and the money they had spent on inspections, appraisals, survey's etc.
Ramifications for the seller were even more severe. They were planning on walking away at closing with $80,000 in equity after the 1st and delinquent 2nd mortgage were paid off. Instead, they basically lost their home, the $80,000, and were still on the hook for the 1st mortgage. They also have a foreclosure that will affect their credit score for the next 7 years.
This transaction was closed and partially funded. At this point, did the closing company have the legal ability to "void" the sale and return the funds to the bank? If so, when is a sale truly final? Who did the funds in escrow belong too?
The answer to that question is significant. With the money returned, the buyer and seller bore all costs. Had the funds been fully disbursed, the issue is more likely a claim against the title insurance. It doesn't seem fair that the closing company got to make this decision.
We are still hopeful that this will have a happy ending for both buyer an seller. Afterall, the courthouse buyer has a very costly and lenghty process in front of her before she will see any return on investment. I'm guessing she might have a change of heart once presented with facts and reality.
Tim Shepard, Broker/Owner
Destin Real Estate, LLC
Cell: (850) 259-4133
Toll Free: (866) 678-SOLD
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