REO/Title issues...again (mineral rights, sale, real estate)

[clarabella]

I posted a few weeks ago re buying REO property. We're in the midst of pre approval etc (with company the bank insisted on though they say we can actually go ahead with any mortgage co). We will be getting a Real Estate Attorney (does $1000 sound right for this?)

We have been told there are no title issues.....what could be the issues with the title and how would I go about checking into this for myself?

Thanks all,
Claire
ps it is actually the same property, went under contract July 20th and back on market by Aug 1st, should I be concerned that it 'fell through?'

[Sunshine Rules]

The main issue in FL with potential title defects is "robo signing." There are several big lenders who have a lot of foreclosures in our area that have been accused of employing "robo-signers" who have made false statements concerning the foreclosure documentation, created fake documentation when they could not find the originals and therefore compromised the chain of title. This typically happened when the loan was transferred into an investment portfolio and sold to investors. If you see MERS mentioned in the chain of title, you definitely want your own real estate attorney versed in foreclosure properties to review the chain of title for you. MERS stands for Mortgage Electronic Recording System. Some states are now questioning whether mortgages transfered via MERS were done legally. (That's another loooong posting if you want to know more about MERS, I've been tracking them for years)

Some recent lawsuits have lead to judges finding the entire foreclosure suit void and the sale defective.

There is also a question regarding liens for utilities or other vendors and marketable vs insurable title. I posted this from a local real estate attorney recently on a different c-d thread on the marketable vs insurance title topic:

Marketable title is title that is free of clouds or encumbrances for the time limitations allowed by the Florida Marketable Record Title Act. If title is marketable (no clouds back for the defined time period), then the title should be insurable.

A REO seller could choose to insure over a cloud and then the title could be insurable but not marketable. If any robo-signing were known to have been done meaning the foreclosure was improper, that could be a claim on title by the previous owner and an inferior interests that would have been improperly forclosed. The problem is the investigation necessary to determine if robo-signing or many other improper things were done in a sloppy foreclosure process (sloppy on the part of the banks and servicers that cut corners and sloppy on the part of the high volume low cost foreclosure mills) will not be done by anyone in a typical REO sale where the REO seller will persuade the buyer to use the REO’s assigned title company. This title company may perpetuate the potential problems by cutting corners, not investigating appropriately, and/or insuring over issues they see. A robo-signing issue could give rise to a claim by the former owner and so could missing liens and mortgages (believe it or not this is not uncommon with the foreclosure mills’ work).

If an REO buyer uses a real estate attorney that will do the proper investigation into the foreclosure, then the risk can be reduced substantially. I am not aware of REO’s designated title companies insuring over robo-signing or other issues. I don’t think any lender for the new buyer would allow such exceptions for the new mortgagee title insurance (required for any new mortgage). Certainly, no buyer should accept any such exceptions.

The bank often gives a Special Warranty Deed which puts them on the hook (in addition to the title company) for title they convey for any claims made by or though the grantor. It is a little more than a Quit Claim Deed that conveys whatever title is held without warranty that anything is held. Certainly, REO buyers want to be concerned about the quality of the title insurance company insuring their title too, as they various entities that act as grantors for REO may not exist in the near future leaving little recourse under the deed.


You said you are getting your own real estate attorney. He or she should be able to answer any questions you have regarding these issues and review the title work with you before you close. This is not a do it yourself kind of project.

As to your question regarding a previous deal that fell through, it sometimes happen as a result of home inspections, title search, or the buyer had a change to their financial circumstances and can no longer purchase the property.

[TamRE]

The lender usually chooses a closing agency for foreclosure sales. It can be a real estate attorney’s office or a title company that will do the closing. When you get a mortgage, the lender may insist that you get a title policy before getting the loan. You can also pay for an owner’s title insurance policy and there are set promulgated rates for that.

If there are defects in the title of any sort, that is called a cloud on the title. If there is a cloud on the title it cannot be insured. The cloud can be anything from the property address being misspelled, a mortgage lien whose payment hasn’t been recorded, a deed which has been signed but hasn’t been properly recorded, an easement that has not been properly recorded, unpaid property taxes, a failure to transfer property rights (such as mineral rights), and a pending lawsuit before a court of law over ownership to the property. Some issues regarding a cloud are easily solved, others are not and in order to remedy it you would need to file a civil action to quiet title. Is that what you are hiring an attorney to do?