A few weeks ago, a REALTOR who often works with non-U.S. buyers sent me a contract and told me that his customer wanted me to represent him in the purchase of a new home in Orlando. I reviewed the contract and saw the typical things that set off my internal alarms:
1) High purchase price in an all-cash deal;
2) Seller was a bank that had taken the house back in foreclosure, and was using their “standard” REO contract;and
3) Out-of-state title company handling the title and closing.
I contacted the title company, and — eventually — they sent me the title insurance commitment. Among other deficiencies, the commitment that the title insurance policy would not cover any title issues that may arise because the bank’s foreclosure wasn’t handled properly. The commitment also failed to list any specific title exceptions such as a declaration of covenants, conditions, and restrictions, easements, or anything else for that matter.
I objected to the commitment on the buyer’s behalf, and the title company sent me a revised commitment that listed a few specific title issues, but still refused coverage of any foreclosure-related title defects. It did list the prior owner’s name, and I realized that the former owner was an infamous local former developer who had been sued in multiple lawsuits over the years.
I decided to conduct my own title search to make sure the foreclosure had been conducted correctly and that there were no judgments against the former owner that were still attached to the property. Unfortunately, the foreclosure was not conducted properly. I discovered at least 10 certified judgments of record against the infamous former owner, all of which had attached as liens against the property that my client was trying to purchase. I reviewed the selling bank’s foreclosure action, and discovered that they had not named or served any of these judgment lien holders to extinguish their liens on the property. Further, the bank had failed to record a lis pendens in the foreclosure, so all new judgments that were entered while the foreclosure action was pending had also attached as additional liens against the property.
I advised my client who quickly directed me to cancel the contract (just a couple of days prior to closing) and demand a return of their earnest money deposit. Fortunately, the out-of-state title company agreed with my search and reasoning, and the seller-bank agreed to the termination and return of the $50,000.00 deposit.
Had my client done as most buyers do, and simply gone it alone, entrusting the seller’s designated title agency to look out for their interests, they would have spent $795,000.00 on the property, and then additional money on renovations and upgrades to the property. When the judgment lien holders eventually came knocking to collect their judgment from the property through a new judgment lien foreclosure, my clients would have had no recourse other than to pay off the judgments if they wanted to keep the home, or walk away from their investment. The title insurance policy would not have covered the problems or paid any losses that my clients would have sustained, because the policy would have been written to explicitly exclude coverage of all the problems I had uncovered.
My client was disappointed that they weren’t able to purchase the property, but they were ecstatic that they didn’t waste $795,000.00. And that made me feel good.