When buying a home, make sure your realtor goes over the preliminary title report with you. There could be unexpected surprises within!
A home in the Richmond neighborhood which recently had a sale pending, did not close on time and almost did not close at all. The reason? The sellers had taken back a second mortgage from the prior owner when they bought the home. As they were getting ready to close, the escrow company gave notice to the prior owner that the sellers were going to pay back the loan so they could close on the sale of their home. There was even a prepayment penalty which the sellers were obligated to pay. However, the prior owner refused to accept the funds and sign the necessary papers to remove the lien created by the loan from the property. Why she refused to comply is anyone’s guess. However, the impact was huge. The current buyers (a family of 5) had given notice on their rental so they had to move. The close date passed and everyone was off to the lawyers.
California law requires that someone who has loaned money and has placed a lien against a home to secure it, is required to respond to an escrow company’s request. Once put on notice by an escrow company to supply the company with the amount owed as well as the original note, deed, and loan documents, it must be done within a prescribed period of time. The prior owner refused to comply. Knowing that the transaction would not close without her complying, she held up the sellers for even more money than the loan or prepayment penalty involved. When everything was about to fall apart, the sellers paid the original owner beyond what was owed and the lien for the loan was removed from the title, clearing the sale.
As a buyers’ or sellers’ agent, I am always carefully reviewing the preliminary title report to ascertain whether or not there are any liens that could hold up the sale of a property. While the behavior of this prior owner is somewhat unusual and was hard to foresee, it is important to analyze any liens in the beginning long before the transaction is about to close.