My sister in law is looking at buying a REO property from Bank of America. They asked her to sign an addendum limiting their liability on a number of things. The one I can't get over is the one "sellers title to property"
To me it seems risky to buy property where the seller is limiting their liability to $5k. I decided to ask title company will they cover in a situation such as this. So far asking, 3 different title officers, not one, can tell me that they will for sure cover this. Do you think we should consider this property? Thanks.
LIMITATION OF SELLER’S LIABILITY AND BUYER’S WAIVER OF IMPORTANT RIGHTS:
BUYER UNDERSTANDS AND ACKNOWLEDGES THAT SELLER HAS ACQUIRED THE PROPERTY THROUGH FORECLOSURE, DEED-IN-LIEU OF FORECLOSURE, OR SIMILAR PROCESS, SELLER HAS NEVER OCCUPIED THE PROPERTY, AND SELLER HAS LITTLE OR NO DIRECT KNOWLEDGE ABOUT THE CONDITION OF THE PROPERTY. BUYER AGREES THAT BUYER IS BUYING THE PROPERTY “AS IS” (AS MORE FULLY SET FORTH IN SECTION 13 OF THIS ADDENDUM). NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THE AGREEMENT, SELLER’S LIABILITY AND BUYER’S SOLE AND EXCLUSIVE REMEDY IN ALL CIRCUMSTANCES AND FOR ALL CLAIMS (AS THE TERM IS DEFINED IN SECTION 26 OF THIS ADDENDUM, AND ALL REFERENCES IN THIS ADDENDUMTO “CLAIMS,” “CLAIM,” “Claims,” Or “Claim” SHALL HAVE SUCH MEANING) ARISING OUT OF OR RELATING IN ANY WAY TO THE AGREEMENT OR THE SALE OF THE PROPERTY TO BUYER INCLUDING, BUT NOT LIMITED TO, SELLER’S BREACH OR TERMINATION OF THE AGREEMENT, THE CONDITION OF THE PROPERTY, SELLER’S TITLE TO THE PROPERTY, THE OCCUPANCY STATUS OF THE PROPERTY, THE SIZE, SQUARE FOOTAGE, BOUNDARIES, OR LOCATION OF THE PROPERTY, ANY COST OR EXPENSE INCURRED BY BUYER IN SELLING A CURRENT OR PRIOR RESIDENCE OR TERMINATING A LEASE ON A CURRENT OR PRIOR RESIDENCE, OBTAINING OTHER LIVING ACCOMMODATIONS, MOVING, STORAGE OR RELOCATION EXPENSES, OR ANY OTHER COSTS OR EXPENSES INCURRED BY BUYER IN CONNECTIONWITH THE AGREEMENT SHALL BE LIMITED TO NOMORE THAN:
(A) A RETURN OF BUYER’S EARNEST MONEY DEPOSIT IF THE SALE TO BUYER DOES NOT CLOSE; AND
(B) THE LESSER OF BUYER’S ACTUAL DAMAGES OR $5,000.00 IF THE SALE TO BUYER CLOSES. BUYER SHALL NOT BE ENTITLED TO A RETURN OF BUYER’S EARNEST MONEY DEPOSIT IF
Latest Real Estate Time Bomb: Title of Foreclosed Properties Clouded; Wells Fargo Dumping Risk on Hapless Buyers
The problem is created through a break in the chain of mortgage ownership. Until the 1980's, most mortgages were loans between the homeowner and a bank, who lent the money directly. More recently, the mortgage financing system transformed into an international system of securitization, with mortgage lenders packaging their loans into securities, bought and sold by investors like stocks. These transactions even split individual mortgages into sections, where each loan could have parts owned by different investment banks.
The transfer of ownership in these mortgage backed securities (MBS) was done with contracts on the balance sheets of Wall Street investment banks, such as Morgan Stanley and Goldman Sachs. The company who originally appeared to make the loan was normally a retail lending company such as Countrywide or Lending Tree, who typically acted as a sales company, and sometimes remained contracted to service the loan.
In the event that the loan goes into foreclosure at a later date technically, the foreclosing bank has no recorded title rights to foreclose in the first place
So what is the risk? The lawyer explains:
The typical (unsophisticated) buyer thinks that because they have a lawyer at closing (no matter whose lawyer it is), a title policy, etc.that they are all safe and sound. They struggle through one of these REO transactions for a month or two, finally get in the house, something bad goes wrong, and they find out that 1) the title policy won't cover them and 2) the land isn't unique (see the nasty provision in paragraph 27 on specific performance, so a refund is all you get and you are out on your ear. Hopefully, with a refund and that may be the best outcome. But if somebody comes in, and voids a foreclosure, your title policy doesn't pay Wells Fargo has clearly disclosed that this was a foreclosure, so you only got what they had (nothing), and you have no recourse, no insurance, and guess what, an unsecured loan for half a million bucks.
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treasurebeacon
Senior Member - 2K
posted: Apr. 16, 2012 @ 6:10p
buy title insurance
mrlandlord
Senior Member
posted: Apr. 16, 2012 @ 7:52p
Not to worry. That is boilerplate. The title search performed before closing will reveal whether BAC has insurable title. Be sure to have your own atty or title co. do the search. If no insurable title then do not close. Youe sister in law may not get her earnest deposit back so make it as little as they will take.
taxmantoo
Ancient Member
posted: Apr. 16, 2012 @ 7:58p
A friend of mine contracted to buy a house from Chase back in February, cash terms, close within two weeks.
Sale is still pending. Nothing much was said about why it can't close, so we're guessing that Chase had some irregularities with the foreclosure paperwork and nobody will insure the title.
svr411
Senior Member - 1K
posted: Apr. 16, 2012 @ 8:25p
Title snafus like this are not unexpected. The title system in this country is an antiquated joke.
What's the big deal about insuring the title and no guarantees on it? Is it a matter of you actually owning it or not? Or might a lien show up or what?
SUCKISSTAPLES
FW Historian
posted: Apr. 16, 2012 @ 9:46p
Just open escrow and get a preliminary title report , the escrow company will then tell you for certain whether they will insure it. If no title insurance can be issued , don't close
The language you are quoting is boilerplate and asking a random question to title co without them having the file in their hands , of course they aren't going to give you a firm answer
airflowmax
Member
posted: Apr. 17, 2012 @ 2:00a
thank everyone for input and advice.
My worry is that the title insurance will not cover this b/c of the fact that BAC requested my sister in law sign the addendum. That means they let her know that the title in not guarantee. The title company will say that she this was a known condition of the sale and will decline coverage even though she has purchased title insurance. Is that possible?
ananthar
Senior Member
posted: Apr. 17, 2012 @ 3:18a
I would not worry : just make sure to carefully read any exclusions to the title insurance before you close (or better yet, have your lawyer review the title insurance policy) to make sure they are nothing major (like problems with the foreclosure). If there are any exclusions that are major, don't close.
On the other hand all policies have some exclusions that are often very obscure and unlikely. For example in County (NY) when I purchased a house, the title policy excluded any claims by the heirs of the Lord Philipse (the last British Lord who owned all the land in Putnam County when USA became independent and was banished from New York for siding with the British and his land distributed by the state). Legally the land transfer is invalid under US law and the heirs still own the land, but New York state exempts anyone killing them under the New York murder statute, to discourage the heirs from stepping foot in New York to stake their claim. This obscure history came alive when Senator Helms in the 90s threated to pass a law to boycott any Foreign company that did buisness with Cuba on the grounds that they were profiting from property illegally transfered from the true owner (now in USA): Canada countered by threatening to boycott any US company doing buisness with anyone in Putnam County NY since they too were profiting from land illegally transfered from the true owners!
SUCKISSTAPLES
FW Historian
posted: Apr. 17, 2012 @ 3:44a
airflowmax said: thank everyone for input and advice.
My worry is that the title insurance will not cover this b/c of the fact that BAC requested my sister in law sign the addendum. That means they let her know that the title in not guarantee. The title company will say that she this was a known condition of the sale and will decline coverage even though she has purchased title insurance. Is that possible? Where is your RE attorney to advise you? Or your realtor ?. What is a known condition, that bofa is limiting It's liability ?
You have no idea what you are worried about
mrlandlord
Senior Member
posted: Apr. 17, 2012 @ 4:38a
airflowmax said: thank everyone for input and advice.
My worry is that the title insurance will not cover this b/c of the fact that BAC requested my sister in law sign the addendum. That means they let her know that the title in not guarantee. The title company will say that she this was a known condition of the sale and will decline coverage even though she has purchased title insurance. Is that possible?
Just because your sister in law signs that form does not mean that she must close if uninsurable title is found. Don't be a deal killer. This is normal, if it were not, no one would ever buy any reo's from BAC. Discuss this with your closing atty.
SirVeyer
Member
posted: Apr. 17, 2012 @ 9:42a
On a similar subject, I need advice on how much to offer for an REO home and any other tips. I will be an owner occupant and live in the Memphis TN area where I consider the housing market to be average (i.e. market has been down but not devastated but beginning to pick up). What percentage off of market value are banks and government agencies are selling properties for? For example, if the property is worth $200K on a normal non REO sale, how much would they sell it for? Thanks for the advice.
JTFH
Senior Member - 2K
posted: Apr. 17, 2012 @ 9:43a
Also, tell your title company person to request a copy of the deed right away... Depending on the state you have some rights with a warranty deed, special warranty deed, which is what REOs usually have. HOWEVER, sometimes they will try to unload a quit claim on you. Definitely get a title report or you might find out everything not directly under the house is still owned by the people whom were foreclosed on.
If title insurance is reasonable (% wise and you're not planning on burning down house) then I would probably get it.
SUCKISSTAPLES said: Just open escrow and get a preliminary title report , the escrow company will then tell you for certain whether they will insure it. If no title insurance can be issued , don't close
The language you are quoting is boilerplate and asking a random question to title co without them having the file in their hands , of course they aren't going to give you a firm answer
airflowmax
Member
posted: Apr. 18, 2012 @ 12:49p
Thanks everyone for advice. I suggested to my sister law the risk is not a worth it. Realtor says this is the first time he has seen this condition to a sale. Realtor is going to ask his attorney to take a look at this to get a definite answer. The question is can a seller make you sign away their liability in selling something that doesn't belong to them. To me it seems to go against contract law to even against the law (fraud). I would have no problem with this if the title insurance will cover the lost if something should come up, unfortunately no title company has given a definite answer of yes or no. They basically say that they do a extensive search on the property to uncover any problems. These are title companies I have personally done business with in the last year.
cout
Member
posted: Apr. 18, 2012 @ 1:09p
airflowmax said: My sister in law is looking at buying a REO property for Bank of America.
Is it FOR or FROM ?
airflowmax
Member
posted: Apr. 24, 2012 @ 1:33p
Update: Still no firm answer from realtor on this. He did point me to this article about buying REO property. Basically, the title company may not cover you if later is turns out there is a problem. So please be careful when buying REO property and understand what you are buying. This is a good article to see what to look for. IANAL
If u cant get insurable title now. U wont be able to deli er insurabke title wheb u sell. Title searches go back 42 years in ohio so if your in ohio u have 42 years before u have a clean title Better be a good deal
airflowmax
Member
posted: Apr. 25, 2012 @ 12:34a
ShaftSlinger said: If u cant get insurable title now. U wont be able to deli er insurabke title wheb u sell. Title searches go back 42 years in ohio so if your in ohio u have 42 years before u have a clean title Better be a good deal
This is what I am warning everybody against. That buying foreclosure sale and signing this kind of addendum can put you at risk. The title insurance might not cover and you have no recourse against the bank because of the addendum,
LordKronos
Senior Member - 1K
posted: Apr. 26, 2012 @ 8:17a
airflowmax said: Update: Still no firm answer from realtor on this. He did point me to this article about buying REO property. Basically, the title company may not cover you if later is turns out there is a problem. So please be careful when buying REO property and understand what you are buying. This is a good article to see what to look for. IANAL
That's an interesting article, but I'm wondering...has this EVER happened? Even once? That article was written 19 months ago, and I'm not familiar with any cases where such a thing has happened. Seems like more of a theoretical problem than an actual problem. From the previous (foreclosed) owner's aspect, most are probably clueless to this, wouldn't have a clue for how to challenge it, and are mostly just interested in having their hands free of the situation. From the financial institution's aspect, they're all probably confused enough that nobody's ever going to notice that they actually had an interest in the foreclosed property. I'd suspect that to be disorganized to cause such potential problems, they likely aren't organized enough to notice.
HKnight
Senior Member
posted: Apr. 26, 2012 @ 9:46a
I don't practice in real estate law, and this is not legal advice, but merely possible questions to pose to a qualified real estate lawyer:
Wouldn't a quiet title action be a possible solution? I would think that it should be the bank's responsibility to provide clear, insurable title, and they should bring such an action. They should find out from a title company what the particular defects are with the title and bring a quiet title action to address these deficiencies. After a quiet title judgment is entered, I would think that the title should be insurable. If court action is necessary, this could delay the sale by months.
Again, these are questions to pose to a lawyer with actual experience in real estate transactions. I do not know whether this is a proper course of action.
airflowmax
Member
posted: Apr. 26, 2012 @ 2:04p
Here is a case where the buyer lost property b/c of problem title. There maybe only a very small chance of happening, but I would understand the problems/risk and protect myself from being the one.
airflowmax said: This is what I am warning everybody against. That buying foreclosure sale and signing this kind of addendum can put you at risk. The title insurance might not cover and you have no recourse against the bank because of the addendum,
While that is a possibility, the sheer number of these REOs will provide some herd immunity, even if the legislatures require a few years to getting around to clean up the red tape.
The people buying homes from banks after the bank gave the boot to a deadbeat will be allowed to clarify their title and sell. If you owned one of these under the circumstances, you would have a problem, but when millions of other people are buying these homes in good faith, it becomes a public policy problem.
At some point, the legislatures are going to have to pass additional protections for individuals who bought in good faith from the bank, then let the deadbeat former owners and the banks slug it out in court for liquidated damages.
They're not going to allow this many properties to have gummed up titles for decades.
airflowmax said: Here is a case where the buyer lost property b/c of problem title. There maybe only a very small chance of happening, but I would understand the problems/risk and protect myself from being the one.
This situation won't be allowed to become normal. When a few more stories like that get widespread media exposure the politicians will be forced to clean up the titles, else the market for these properties stays frozen out of fear, leading to more bank failures when unsaleable properties become a near total loss.
a lot of good advice here. except the guy who said get title insurance. title insurance won't help you. title insurers are on the hook only if they missed something at the recorders office. that means issues such as adverse possession, easements, contaminated soil, etc etc etc you will be on the hook for, not us. bank and not the title company. its a gamble, buying reo you will get a good deal but you will have lots of fixup and you might face an issue described here.
dont let me scare you. i bought reo and have noooooo regrets (yet lol)
OneBread
Member
posted: Apr. 28, 2012 @ 3:19a
I agree with whoever said open escrow and get title insurance. Title company will check for any liens on the house and let you know. Before closing Title company will do another check and will not close or issue Title insurance if you can't have clean title. Title companies are not stupid; if you don't have clean title, they are on the hook.
Lesson learned...I don't like it when someone write an addendum or agreement and ask me to sign it. I can bet that it's not in my favor. I would rather write the agreement (state what I want) and have them sign it. I once made an offer on a house, agent asked for deposit check and proof of funding (i.e. money in my checking and saving accounts), I asked why, agent said that's the way it works because bank demands it, I said then I demand bank show me proof of ownership of the property.
Also, don't trust your agent or attorney. They are only looking after their pocketbook. Everybody wants to take the money and run. Only YOU can look after your best interest.
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