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Is That Property You Have Listed Eligible To Be Sold?

I have had 5 transactions this month that had BIG TROUBLE because the listing agent didn't ask their seller some hard questions. The files blew up a few days before closing because the title reports revealed tax liens, encroachments and judgements against the SELLER.

We are seeing more and more of this because of the rash of short sales and foreclosures, not to mention the incredibly lacks lending guidlines between 2004 and 2007. Basically anyone could get approved for a loan and any property was eligible.

BUYERS, REALTORS, LENDERS...Don't let this happen to you. As a Listing Agent you can have a frank conversation with your seller and you could even order a Pre-liminary Title Search to be sure of clear title BEFORE spending your time and money marketing a property that may not even be eligible to be sold. BE INQUISITIVE...ASK QUESTIONS. Of course...a ba-zillionair could pay cash for the home, cross their fingers and hope for the best. Ya, that's a good investment strategy.

LISTING AGENTS -SOME QUESTIONS TO ASK YOUR SELLERS:

IS ANYONE SUING YOU RIGHT NOW?
HAVE YOU ADDED ON ANY ROOMS THAT MAY ENCROACH ON A UTILITY EASEMENT? NO ONE WANTS THEIR EXTRA BEDROOM BULL DOZED BECAUSE THE WATER COMPANY NEEDS ACCESS TO A PIPE.
DO YOU HAVE 2, 3 OR 4 MORTGAGE ON THIS HOME CURRENTLY?
HAVE YOU KEPT CURRENT ON YOUR REGIME FEES/ HOME OWNER DUES?

SELLING AGENTS- SOME QUESTIONS TO ASK THE LISTING AGENTS BEFORE SUBMITTING AN OFFER

CAN WE REVIEW TITLE BEFORE MAKING A COMMITMENT?
HAVE YOU ASKED YOUR SELLER THOSE 4 QUESTIONS LISTED ABOVE?

LENDERS - SOME QUESTIONS TO ASK LISTING AGENTS WHEN YOU GET A CONTRACT AND BEFORE YOU LOCK IN A RATE!

ALL OF THE ABOVE

To sum all this up...order title early and review it carefully.

Posted by Melissa Breeland on 03/13/2009 01:23 PM

Comments (81)

title, closings, buyers, realtors, sellers

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81 Comments on Is That Property You Have Listed Eligible To Be Sold?

MAR

Hey Mel! Good info to avoid some pitfalls, not to mention time wasters. Thanks. Have a great weekend!

Melissa --- great blog. I agree with you that we need to begin to get sellers to do preliminary title searches as a selling tool.

Mama Liz's Signature

Great thoughts! This comes in handy when many of us might rush into another listing. Thanks for the tip.

Melissa, very informative! These are issues that you definitely need to know before about before tyring to sell a home.

Great information, as always, Melissa!

Thank you!

Hi Melissa ! - Very nicely summarized ! A Preliminary Title search can be a big help these days, especially if a seller is unsure of their status. Great info.

Cheers !

Sheldon

I don't know all the details but I know of a broker in Illinois that recently purchased an empty lot to put some storage units on. Shortly after the contractor began preparing plans for the storage units the owner (a broker) discovered the lot had $60,000 in liens against the property. He's putting his storage units somewhere else.

Melissa - As a mortgage gal, I have seen so many more clouded title reports in the last year than I ever saw in the previous six years of my mortgage career. As a lender, I always discover these issues very early in the process when we get the prelim report. LENDERS - YOU NEED TO ACTUALLY READ YOUR PRELIM REPORTS. No one else is going to read them for you, least of all the seller/bank and/or listing agent.

My biggest concern and ultimately, my biggest gripe with REO properties is that, many times, the REO listing agent as well as the seller/bank are well aware of the issues and intentionally do not disclose this info prior to a buyer making an offer.

In a recent situation, I had a client make an offer on an REO property and sure enough, when we got the prelim report, there were clouds on title. When my clients Realtor confronted the REO listing agent about it, she played dumb and said she wasn't aware of it. With a little research, we discovered that not only were both the REO listing agent and the bank notified directly of these issues six months earlier, it was also the same reason that the previous escrow was canceled four months earlier. Despicable!

I wish I could say that this was an isolated incident but, unfortunately, it is not. It is happening more and more these days and it's just such an unethical way of doing business.

Title insurance, people. Pretty amazing! :)

Another question for listings agents to ask in their pre-list consult:

Have you had any work performed by a licensed contractor in the past 6 months? If yes, then ask: Did you PAY THEM!

In Oregon contractors can file liens on the property AFTER 180 days of the non-payment, or when worked ceased. Contractor's liens, mechanic liens . . .

180 days is a long time to NOT know something. A house could be sold in that amout of time, and title would have shown an uneumbered title -- but then . . . oopsie!

Agents . . . look around the property while showing it. New windows? Extensive upates? Ask questions (in writing), and try to do as much due diligence as possible for your clients.

DISCLAIMER: Liens are attachments that run with the title of the property, NOT with the seller/owner (in most states). Encumberances are also called "clouds" on the title. Check your states' information about liens, and/or talk to your title/escrow people to find out how they work. ASK if a title insurance policy will cover a lien placed AFTER the property has deeded (should a constractors/mechanics lien pop up.) It's getting messy out here folks!!

P.S. Your post inspired me: http://activerain.com/blogsview/981908/Clouds-on-My-Title-Who-RAINED-on-my-Parade

A preliminary title search from a lender plus a CLUE report from an insurance rep and we're cookin' with gas! Great post!

I sat through a NAR webinar on Short Sales yesterday and they said that 1/3 of listed short sales are not closeable. A lot more questions need to be asked of sellers and listing agents. Great post!

Nice reminder. Thanks for you puting it together

Great post Melissa!!!!

I also agree with Donne Knudsen (Pacific Financial Mortgage). All to often I would see issues as well when I was in the Mtg. Processing field. It's not only a headache when the clouds arise but very frustrating to have to do someone else's job for them. If the lisiting agents don't want to do their jobs correctly get out of the business!

in colorado we always used to do a TBD title commitment but in Kansas the title companies don't like to do them. I liked having the commitment then all they need to do is add the buyer once the property goes under contract.

WOW! 5 transactions? That's too bad. That's a good reminder!

After reading your post I am very glad that I always order pre-liminary title

In the Maryland suburbs, about 25% of the trustee sale foreclosure auctions are active listings. Many are under contract. The forclosure, of course, kills the listings and contracts. Some agents do not have a clue.

Follow me on Twitter @roykelley

Hard to believe that 5 transactions like this would come up. One would be bad.

I run a prelim on all my listings. I have had 3 go bad this year due to fraud on the other side of the transaction.

It's such a small price to pay and therefore there are no surprises.

We have to ask for split closing to get all the clouds to become clear. Banks do NOT want us aware of problems and then they become buyer bills after the closing. Yikes!

Carla - thanks, that is another great question to ask sellers...oh, and, "Do you actually own this property?" is a good one too. :)

Elizabeth - 1/3? Wow!!

Adam - I'm not sure if a Pre-Lim is even an option in SC...no one seems to know what I am talking about. We get title to review about 2 days before closing and that's early!

Chuck -Yes, 5...3 closed but only after many delays and fast thinking on everyones part to get title cleared.

I'd like to add to that list of questions: Listing agents need to REVIEW the owner's loan documents for prepayment penalties! Many subprime loans carry prepayment penalties which can wreak havoc at closing.

Thanks Melissa. I'm going to be meeting with a prospective seller next week of whom I know I need to ask those hard questions.

WOW, but that is what the prelim is for. I know so many agents who don't read it,and as soon as you get it, you need to read it, listing or selling agent to see what's on there. Many problems need to be resolved, and will come up on the prelim. These are great questions to ask also, particularly in this market, though, you might not always get honest answers...

Thanks Melissa....great info. Agents these days need all the insight they can get. We might seem"nosy" but it's part of the due diligence. Times are strange.....hope these days pass real soon. It makes me wonder if the seller should provide a clear title at listing ?

Melissa - "I'm not sure if a Pre-Lim is even an option in SC...no one seems to know what I am talking about. We get title to review about 2 days before closing and that's early!"

If I were you, I would be checking with a reputable title company about that one, not the seller/banks title company but one you have worked with before and trust and respect. That's just plain ridiculous to get a title report 2-3 days before closing.

Based on your recent experiences, it's quite obvious that you need to be doing this sort review much earlier in the process. Personally, I always order the prelim report within a day or so of opening escrow just to prevent these types of situations.

A preliminary title search? Hmmm? Wonder if my settlment attorney would have a problem with doing that? Or as you say, I can ask the other agent if they did that before they listed the house. And I can use these questions to make me look more knowledgable in front of my buyers and sellers. Thanks

Thank you for the tips- although I am sorry they had to come from transactions you were working on... One other thing to keep an eye out for - Make sure your clients are the legal owners of the home. In AZ, we have had some criminals prey on people down on their luck. Essentially, the predators get title to the home without their knowledge and very often sell it out from under them. Very sad.

Good tip, thanks.

Another thing to watch out for is - are all the owners signed on? You may have one owner list then later find out there are others...

Great post and SO true. With the current market conditions, it is important to ask these questions -- even when you don't anticipate any short sale, pre-forclosure, etc. with the property.

The listing agent AND selling agent need to be asking the questions early in the process and reviewing preliminary title as soon as you can get your hands on it. Things can still crop up between receiving the preliminary report and closing (that's where asking LOTS of questions comes in). Information is KING!

Melissa... excellent post. As a title person I can't tell you how many times over the years this has happened. The questions didn't get asked and no one read the title report and everybody involved got mad. Thank you, thank you, for reiterating these very important simple steps.

I should do a blog on the WAR stories I've been involved with... some real drama to be sure.

Rene' Fabre

Great post! I am sure that this will get much worse before it gets better. Another perfect example as to why buyers and sellers need to use the best full time professional agent they can find.

Melissa - Great points and recommendations before one takes that listing. It is critical to plan ahead. Also, sometimes sellers can clear title but their estimated proceeds will change dramatically too if unexpecting things come up on title. So we always try to get the title reports back asap and on a "tricky" deal, we will do a prelim title search ahead of time. Great post !

Melissa - Excellent blog piece with some real thought provoking questions. There are so many moving parts to escrows in recent months, because of the mine field of short sales, foreclosures, and other interesting property distresses.

Seriously - most of my sellers would have no clue. Don't you people have title insurance? Preliminary title searches cost money that nobody seems to have.

We usually have problems with sellers that have "inherited" the property with shoe string claims

Melissa: It's a messy market right now, isn't it? These are great tidbits for all of us.

Great post we should all read! Three days before closing the listing agent calls me (AT HOME) to let me know my buyers would need to come up with more money for closing...I informed her nooo we have a contract and my buyers are not going to do that. She told me well the payoff on the house is wrong and the seller will be out of pocket. First I was confused on why the mortgage company sent a bad payoff amount...came to find out after my broker took it to her broker that the sellers were this agents friends and told her oh that payoff amount is wrong we only owe XXX much. Well needless to say she didn't get her commission and we closed but it could have easly gone the other way. That was 10 years ago and the agent is still in business and didn't learn a thing from it. I am tempted to send her your blog. Anonymously of course :)

Going the extra step and double checking everything can save you time and money in the end! I think one can never be too careful...

Portsmouth NH Real Estate

Never thought about asking for a pre-lim title seach but more, now than ever, it makes sense.

Melissa, Great points made here. Sometimes I wonder if you can ever know the whole story.I was the victim of a seller fraud situation. My seller,.. all questions were asked,. however lies told. I did pull title and discovered the 2nd, and 3rd mortgage were not tied to a business, but to the home I had listed. More than the disappointment from my sellers was my disappointment with the second and third leinholder who gave notes to these folks with no documentation, no appraisal, no titlework. In fact, the last a mere 5 months before the listing, to the tune of 45K over value and after the seller had been late on payments for 5 months previously.

Ah.. but we have a buyer, so how to resolve? How about placing the mortgages over to the commercial property that the funds were used for to begin with.. the one with all the equity and with a lease capable of covering debt service? That was too easy, the second and third mortgage holders have now foreclosed the property and will not see a penny of their investment. On top of that, the buyer's agent wanted to sue me for commission..what commission?

Meanwhile, my grandfather, a banker of old who problem solved with people all while preserving the integrity of his bank, just rolled over in his grave. There's 72K for the bailout.

Sometimes, no matter how careful you are you just can't help getting caught in the middle.

These questions are covered in our listing agreements and Ialways go over the with the seller when we list. Have not seen the problems that you mention. It sure bears thinking about. I'm glad that are agreements cover this.

I've had the encroachemtn conversation with several sellers lately. Generally it has involved fences. In some cases theirs were on neighbor's property, and in others the neighbor's fence was on theirs. I told them they need to straighten that out before we listed. The last thing we want is to start a neighborhood squabble after closing because of something simple.

Hi Melissa -- Even location surveys aren't accurate enough oftentimes to resolve encroachments. Our listing agreement covers these questions, and our state mandated property disclosure covers the remaining issues -- but if the seller isn't honest, somethings things can go wrong.

Great reminder especially in these times. I tend to take my seller's at their word and I haven't run into any trouble...yet!

YOu are right that these are sticky issues, but should this not just be the things that are on the check list anyway?

I order prelim before a listing presentation and go over it with the owners when I see them. Than way they know what is in there, and they can tell me about it, I also explain that other forms of liens are construction and tax - and they have the opportunity to tell me if they "missed" something.

Sorry to hear about your 5 deals - the good news is, it will probably change the way you do business, and hopefully that will prevent it from happening again.

My title company can do a short search on someone else's seller, when I have the buyer! I have started doing that this year, due to all these types of problems, AND I have read right here on AR that some REO's don't really own the properties, problems with deeds etc....so now we trust no one!

Hi Melissa, We have a multitude of questions on the listing form that addresses these very items. We have a terrific in house title affiliation. We order title work timely so that problems can come to light & be resolved quickly. This have saved a lot of headaches!

Ouch 5 in one month!

I'd add another- is the shed/new bathroom/ addition you are so proud of legal? Did you get permits and a c of o from the city?

Doesnt your application have those questions on the last page? If not I would add those on a checklist to save time and heartache. I can imagine losing 5 deals in 1 month, that is a lot of stress!

Melissa,

Solid advice here in this post! We are seeing some of this happening here in Canada as well where Sellers who have bought in the last couple of years have liens, encumbrances or the dreaded no equity problem. Take and happy blogging to you!

Melissa: Great post here.. Always nice to know up front if there are any issues with the title. Of course in our area the title search is not normally done until we have a contract... Hmmmm

Thank you for your post. Great advice. Enjoyed all the comments so far.

With all the crap going on in today's market....we must take all precautions.

MAR

Melissa, great post! What about an unpermitted add-on room, that the City red-tags for tear-down???

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This is so true. I Have seen many issues come up on the title search and it can really hold up the proceedings

When I take a listing, I always order pre-committemnet title work. It is in the file and then when I get an offer, we have the title company update it with the purchase agreement, it goes much faster. The lenders always want the title work right away so it helps move things along.

I had a short sale accepted yesterday with a quick close date, even though they took months to accept.

But, because I had ordered it we are not waiting on anything but the appraisal.

This is a smart business practise.

How timely. I got a call last night from someone who is really stressed and needs to sell now. But her ex is on the deed/mortgage and won't sign off. I told her unles she gets him on board, we cannot do anything.

I always order pre-committment title work, just to see what is on it. I don't like surprises when its close to closing. Great reminder to us all.

Excellent post and excellent questions to ask the seller and the list agent!

Here is one more...

If an estate sale...has the listing agent spoken to the attorney for the estate to make sure the sale was approved by the court...a listing agent I am dealing with doesn't want to accept the blame for a delay due to a title issue...she did not know that the seller had not followed thru...I love the questions you have here and will post...ran into a permit issue in January and went to the permitting department...it was fine, but could have blown up.

I've talked with two different sellers in the last month that have title issues that they need to resolve before putting their home on the market. Sometimes they don't understand how critical it is -- and that usually you can't put your home on the market until it is 100% resolved.

Great reminder for everyone! I use a one-page questionnaire that I give the seller prior to listing that asks for all of these "'uncomfortable" questions.I let them know that the title company will get this info anyways, but it's best to speed things up from the beginning.

Great topic and the comments bring up even more issues to raise before you list. My state has a required Seller Disclosure that addresses some of these issues. One of the comments got me thinking about the type of loan the seller has. Not only should we find out about prepayment penalities, but some "grants" have to be paid back if the owner does not stay there a minimum number of years.

The state of the market we are all working in.

You are so right--- there are times a home on the market has issues that make it not able to be sold .

Strange how so few agents cover all the things necessary to assist sellers and buyers during the home marketing and buying process. Thanks for covering a few more. Too bad you had to go through the experience yourself, but at least it provided more training for the rest of us. Thanks!

I haven't read all the comments and someone may have already said this but when having that discussion with the sellers, you should ask if they have a copy of their title insurance policy. The buyer's agent should ask for it also so that the buyer's can get a reissue credit on the new policy (if it applies)- If the listing agent has it then they can use it as just another marketing tool that the reissue credit is available on that home

One of my realtor partners was a week away from her closing when they found out that the seller had attorney liens on the property. Thankfully they were able to get them resolved but I doubt that happens often.

Good post and thanks for the information. I'll keep the questions available so as not to forgert to ask...what a nightmare!

I had a man try to sell his dad's house 2 years ago because he was supposed to be making the mortgage payments, and had stopped. I guess he figured if he sold it first, his dad wouldn't find out, lol. How dumb!?

Too bad I always check the tax records to see who's on the mortgage before I go to the listing appointment. Seriously, it takes all kinds.

Melissa,

Great post and great responses. In summarizing all of the above, this is the time when "professional real estate agents" will be sorted from the casual agents. In the past all sorts or inequities were permitted. The agent that will survive these hard times is the agent who will go the additioanl 100 miles for their client despite making less commissions than they made for much more work six months ago.

Ask yourself, if you were selling/buying for your brother/sister/grandmother what would you do to make sure that your blood relative does not end up loosing out big time!

I look forward to collaborating with the "REAL" real estate agents.

Don

Here, we have to use a lawyer to close a real estate transaction. A title search is done usually about 2 weeks before closing, but it's the buyer (or buyer's agent) who is in control of when they want this to happen... and a title search can be done any time, and it only takes a few minutes, so I really don't know why it's not done more often.

I never wait until days before closing, to check with the lawyer, to ensure everything is crystal CLEAR, and if not, the buyer's lawyer still has lots of time to fix any issues with the seller's lawyer.

When I am the listing agent, I recommend an immediate title search, if the seller even thinks there may be something registered on title. They don't usually object, because they want to know exactly what they are looking at too.... and sometimes, it could be a clerical error... (nothing the sellers did wrong)... but that too needs to be fixed, so do it sooner, rather than later.

I also get the sellers to fill out a mortgage verification ... sometimes it's a real shock to them, the amount of penalty they have to pay, to break a mortgage ... so the earlier we know, the better.

If you start out prepared, there will be no surprises on closing.

Melissa - You are so right. A pre-lim is always important....now more than ever! Excellent post.

MAR

Excellent advise. I'm going to point my "following" from twitter to this article. Rita

The final part of your message says:

SELLING AGENTS - SOME QUESTIONS TO ASK THE LISTING AGENTS

Maybe this should be edited/corrected?

Dick - what needs to be edited or corrected?

MAR

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Alessandra

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JAN

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Melissa Breeland

Charleston, SC

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Residential Mortgage of SC

Address: 902 Savannah Hwy, Charleston, SC, 29407

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