When last we left my tale of the Undisclosed Short Sale Flip, my Buyer (Vince) was ready for the settlement date of February 26th on this regular sale. He'd done his home inspection, had the appraisal and we were ready to close. To read all about that, revisit Short Sale Flip Volume 1: The Snowstorm. Now let's continue the story.
THE FIRST RED FLAG
The day before Settlement, I got a phone call from Vince's Lender (Zach), who I have worked with many times before. Zach informed me that the title company (WSCE) has just rejected the loan documents sent by Zach's closing departments. He's asking me if there are any problems I know of with Settlement happening the next day. I told Zach I'd look into it and get back to him.
Let me stop for a moment and tell you that the biggest problem I thought my client Vince would have is WSCE. From the beginning our contact there (Juanita) had been difficult to work with. Clearly, I wasn't the one that had a relationship with her, that was Jane (Listing Agent) and Lorraine (Trustee Selling the home for a family trust set up by Owner, Mehdi Mohammed). I chalked up her indifference to any of my calls to the lack of prior relationship.
I called Juanita immediately and asked her why she rejected delivery of my Buyer's loan docs. Juanita's answer was the red flag that gave me goose bumps.
"Because I put a call in to Lorraine this morning and haven't heard back from her. I don't know what she wants to do."
I was calm, cool and collected and explained my concern that an unreturned phone call from the Seller would prompt such a reaction from any employee of WSCE. Juanita insisted there was more to it. WSCE hadn't received the mortgage payoff amount from Lorraine. (Okay...why in the world is Lorraine getting the payoff. Isn't that WSCE's job? And rejecting the loan docs screams that we have a problem.)
Without hesitation, I called one of the best Settlement Agents I knew (Scott) who worked for a company I had conducted many settlements with, Best Title. I tell Scott what has happened and he tells me to ask Juanita for the title work. More specifically, he says, "Ask her for all the back work." So I did. And when Jaunita reluctantly emailed it, I forwarded it directly to Scott and asked him to go over it with me. Once Scott had digested the information, he called to inform me that WSCE was not showing me everything. Their back work consisted only of 16 pages. He knew they were hiding something. The trust that had been set up by Mehdi Mohammed made Scott cringe because it was not set up in Mehdi's name. The name of the trust was the property address. Evidently, Scott said this is what investors setting up trusts would do. So Scott offered to have his title examiner (Lynn) do a full title exam and get back to me.
While was going on, I got a call from Jane. She apologized profusely and explained that we were going to have to delay Settlement. The mortgage that we were waiting for a payoff amount from had recently been sold to a servicing company, and it was lost in the shuffle. Jane knew that time was of the essence to my Buyer Vince, and had spoken with her client, Lorraine. Lorraine offered Vince Pre-Settlement Occupancy for no charge and provided an addendum to extend Settlement to March 12th. That gave Lorraine and WSCE time to get the payoff.
I explained what was happening to this point to Vince. He knew that all the hairs on the back of my neck were standing up. He said he would sign the addendum and the Pre-Settlement Occupancy. However, at my advice, he did not want to move in until Scott gave us the all clear on the title search being run.
Speaking of Scott, he called back the next day, which was our originally scheduled settlement date. Scott found four things that were concerning. 1) The day before when WSCE had rejected delivery of Vince's loan docs, a Substitute Trustee's Deed was filed with the County. This meant that the bank holding the loan had begun foreclosure proceedings. 2) He also found that Lorraine, the Trustee was apparently Trustee on a lot of homes recently. She had the Sellers sign title over to her for no consideration. These properties were all sold within six months of her setting up this trusts. Scott felt we were dealing with an Undisclosed Short Sale Flip which could present HUGE title problems for Vince. Especially given: 3) The last recorded mortgage amount in 2006 had been $380,000. That was definitely not getting paid off by the $285,000 sales price. Finally, 4) WSCE had been in business before and been forced out of business when they a title insurance claim on a fraudulently issed title policy. Sadly, that was when they were known as Worst Settlement Company Ever and all they had done to go back in business was change the name of the company to their former company's initials in order to fly under the radar of title insurance underwriters. Clearly at this point we could trust no one on the Listing Side or WSCE.
Of course, I shared all of this with Vince and advised him to switch title companies to make sure when this closed that he had a good title insurance policy and not one were underwriting had been lied to. Scott had encouraged us that Short Sale Flips are tricky, but can close and be perfectly fine. So Vince decided that since Best Title obviously knew what they were doing, we needed to use them.
Out of fury and curiosity, I called Juanita at WSCE and asked why they had hidden the majority of their title work from me. I also asked if they knew about the Substitute Trustee's Deed filed the day before. They really let the sleaze ooze when they told me that I had not asked for ALL the title work and that the Substitute Trustee's Deed was filed years ago. Really? I can read. The document was dated 2010. Oh I HATE being lied to!
Last call was Jane, the Listing Agent. Jane knew nothing of all of this and was shocked. I asked her if there was a Short Sale happening between Lorraine and the mortgage company. She denied that and said this was a regular sale. Jane insisted it would be fine. In the meantime she would talk with Lorraine and find out what was happening. Maybe during the mortgage being transferred to a service company a wire had been crossed or something, but the property was NOT in foreclosure. In closing, I informed her that we were going to be sending a notice to change title companies to Best Title since WSCE had acted out of left field the day before and my Buyer felt they could not be trusted.
The story continues in Short Sale Flip Volume 3: The Google Search.
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