Hypothetical title question

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Anonymous_IHB

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Hi, I was wondering what might happen in this hypothetical scenario. Let's say in a few years you

1. Bought an REO (assuming it'd be AS IS - so any cloudy title, undisclosed repairs, etc. are your problem)

2. Your title insurance company goes bankrupt (stories like this http://mortgage.freedomblogging.com/2007/11/01/first-american-earnings-plunge-48-as-home-loans-slow/ and the post by lawyerliz about banks trying to make title companies pay up for mortgages gone bad by finding paperwork mistakes make me worry).

3. Someone comes after you for title stuff (ex. former foreclosed owner finds a legal loophole to let them buy the property back, or some contractor who had a lien against the house before your bought it comes after you or something).

What happens in that case?
 
Ok, guys, it's fine to do a title search yourself, to check what someone else is doing, but that doesn't mean you know how to evaluate what you find.

If you find unpaid liens or mtges, that's pretty obvious, and you need to check into it.

There are things called Statutes of Limitations, which give you legal time limits to sue or not sue. If you let the Statute run, then you owner can ignore the problem. in Florida, some limitations times are very short and some are very long; I assume these would vary in California. For example, you have only 1 year to foreclose a Mechanic's lien (roofer, dry wall guy, etc.), but could still get a money judgement for the unpaid amount if there's a written contract for 5 years. Etc.

So you could be unnecessarily scared with what you find.

Also, the title underwriters will fight to the death before paying these claims, so any title underwriter bankruptcies are many years and appeals in the future. Agents who knowingly or not, screw up usually have E & O insurance or Atty's malpractice, tho it's a pitiful amount compared to the possible liabilities.

Also, what you find might look bad, but actually be ok. For example, a closing planned for tomorrow (Hurrah, I actually have a closing tomorrow--a commercial property) there was a divorce atty charging lien for a fairly huge amount shown as unpaid. The owner had actually paid, but the atty hadn't filed a satisfaction; after prodding, he provided me with a satisfaction. This lien was going to expire next year anyhow. If it was still unpaid, I was going to propose holding the money in escrow until the year was up.

In the world of real estate, time cures almost all wounds.

Very fat tomes are written as to all this stuff.

Also, it's not clear to me whether hitting that button will get you a name search as well as a property search. Here, you must search the names of the owners to discover judgments; since they are not filed with a legal description to attach the judgment to (unless the judgt specifically relates to the property in question.
 
If the title co won't defend the title, then you've got to do it yourself, if they actively sue you. Don't try to do this without a lawyer; the issues can get horrendously complicated.
 
Anon - a few other things. The First American article just says that their profits were half of last year's 3Q numbers. A single quarter with a profit over $45M? No one with that kind of balance sheet is filing BK any time soon.

The second thing is, even if you or the title company does the search, you never know (until its too late) if the County mis-indexed a deed. I had a case like that once and while the title company was defending, they sure as hell didn't want to pay out.

OC's are imaged and electronic from the present back to about 1982. Prior to that, I think it's on microfiche.

In any event, the wild deed issue usually isn't a problem if you have a foreclosure. Whatever title issue the bank had notice of when it recorded the deed of trust (say, an existing lease) is what you would be deemed to have notice of if you bought the home out of foreclosure.

As always, this is not advice and should not be relied upon. If you want useful advice, seek out the services of a real lawyer.
 
What? You mean the County could screw up? I don't believe it.

{sarcasm off}

Then there are even certain cities that are worse. Oh the stories I could tell. Lets just say Costa Mesa has issues.

And yeah First Am isn't going BK anytime soon. They were smart and starting in 2005 they started to diversify their businesses. Soon they will be seeing more profit in the portions of their business that are far from their peak. They knew this was coming.
 
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