Short Sales and Mysteries Uncovered in the Title Report

The wacky world of short sales

This has been a wacky week in the wild world of short sales. With Bank of America announcing just the other day that they are going to be temporarily halting foreclosures across the nation, the real estate industry is abuzz. Since I live in that wacky world (the short sale arena), I wanted to share an experience I had with title insurance so that other short sale listing agents (actually any agent) may learn from that experience.

About 10 days ago, an agent brought me a short sale package for short sale negotiation. The short sale package was complete and included all of the necessary documentation. Since the Trustee’s Sale (auction) was imminent, we wanted to get that package to the bank as quickly as possible. So, while we did go through all of the necessary steps to prepare the short sale package for the bank, we made the decision to send off the package immediately and not wait until we received a copy of the preliminary title report.

The short sale package was faxed to the bank and the bank opted to postpone the sale date in order to entertain the short sale offer that we presented. During the few days after the short sale was submitted, we received a copy of the preliminary title report as well as a property profile—both from the title company. We reviewed both of these reports and noticed that there was only one lien against the property and the lien amount was around one hundred thousand dollars. However, the property was being sold for over two hundred thousand dollars and the mortgage statement that we received was for over three hundred thousand dollars. A mystery ensued.

This mystery is exactly why you must review the title report and look carefully at all the information—especially the information about liens against the property. In a short sale (in any real estate sale), you must assure that all liens are going to be cleared at closing. In a short sale you must obtain lien release letters (or approval letters) from all of the lien holders that are agreeing to receive less than the full loan amount at closing. So, it is vital for a short sale negotiator or a short sale listing agent to assure that all of the liens on the title report are being addressed in the short sale process.

Do not be intimidated by the title report.

In the case I described above, something was very strange. The amount of the lien on the title report did not correspond to the amount on the mortgage statement. So, we called the title officer to obtain copies of all of the different items that had been recorded against the property. This title officer uncovered so many different deeds; the property was transferred from one person to another and then to a trust. There was even a lease that was recorded in which the owners were the tenants and some third party was the landlord.

While all of this reeked of fraud, it was and is completely beyond my area of expertise. You see, I only hold a Master’s Degree, and this complex labyrinth of deeds and recorded documents required a post-doctoral degree in Title (if there is such a thing).

The Title Company has been very supportive and their legal department has provided a lot of support and guidance in order to assure that we are obtaining lien releases for the short sale from the correct parties.

I’ve been involved in many transactions where agents leave this sort of work until the last minute. I have visited many real estate officers where the title reports are piled in envelopes are left unopened. In any transaction (and particularly in a short sale), it is vital that the title report be reviewed at the very beginning of the transaction. This way, just in case the title report shows something wild or wacky, the appropriate parties have plenty of time to resolve the matter prior to the closing date.